Suppose that Barone Corporation's sales are expected to increase from $5 million this year (year 0) to $6 million next year (year 1). Its assetstotaled $2,500,000 in year 0. Barone is at full capacity, so its assets must grow in proportion to projected sales.At the end of year 0, current liabilities are $800,000, consisting of $200,000 of accounts payable, $400,000 of notes payable, and $200,000 ofaccrued liabilities.Barone's profit margin is forecasted to be 3.00% and the forecasted retention ratio is 25.00%. Barone seeks to forecast the additional fundsneeded using the AFN equation.Let A represent Barone's assets and So represent sales in year 0. Let AS represent the change in sales in from year 0 to year 1.According to the video, which of the following best represents the projected increase in assets as part of the AFN equation?-AS+ AS× AS× SoUsing the formula from the video, the projected increase in assets, as part of the AFN equation, is

To calculate the additional funds needed (AFN) using the AFN equation, we need to determine the…

Answered: Suppose that Barone Corporation's sales…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The Stewart Company has $1,295,000 in current assets and $543,900 in current liabilities. Its initial inventory level is $259,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0? Round your answer to the nearest dollar. $
If the bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $60 million one-year liability paying 10 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates decreased by 2 percentage point?
Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 40%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 25%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of…
Derry Corporation is expected to have an EBIT of $2,550,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $190,000, $95,000, and $195,000, respectively. All are expected to grow at 16 percent per year for four years. The company currently has $14,000,000 in debt and 805,000 shares outstanding. At Year 5, you believe that the company's sales will be $27,600,000 and the appropriate price-sales ratio is 2.2. The company's WACC is 8.5 percent and the tax rate is 22 percent. What is the price per share of the company's stock? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Share price
The Tigers Inc.'s sales are forecasted to double from $900 in 2020 to $1800 in 2021 (that is, a 100% increase). The 2020 Balance sheet for Tigers Inc., is shown here: 2020 Balance Sheet Cash $ 50 Account payable $ 100 Account receivable 250 Notes payable $ 150 $ $ $ $ $ Inventories 250 Long-term debt 400 Net fixed assets 500 Common stock 150 Retained earnings 250 Total assets $ 1,050 Total liabilities and equity 2$ 1,050 Assume that Tigers' fixed assets were used to 100% capacity and that its current assets were at their proper levels in relation to sales. Tigers' after-tax profit margin (i.e. NI/ Sales) is forecasted to be 8% and its payout ratio to be 40%. $ 900 $ 1,800 Sales 2020 = Sales 2021 = NI/Sales = Payout ratio = 8% 50% What is Tigers' additional funds needed (AFN) for 2021? Round your answer to the nearest dollar.
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Derry Corporation is expected to have an EBIT of $2,950,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $230,000, $135,000, and $235,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $18,000,000 in debt and 845,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.1 percent, indefinitely. The company’s WACC is 9.4 percent and the tax rate is 25 percent. What is the price per share of the company's stock?
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Derry Corporation is expected to have an EBIT of $1,900,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $80,000, and $120,000, respectively. All are expected to grow at 15 percent per year for four years. The company currently has $10,000,000 in debt and 800,000 shares outstanding. At Year 5, you believe that the company's sales will be $13,620,000 and the appropriate price-sales ratio is 2.1. The company's WACC is 8.4. percent and the tax rate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price
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The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed with 55% debt. Wei has $8 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year? Round your answer to two decimal places.

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