The following relates to financial projections of ABC Co. for 2019: Suppose that, in 2024, ABC’s sales are expected to increase by 15%. By what percentage is the operating income expected to increase?

The following relates to financial projections of ABC Co. for 2019: Suppose that, in 2024, ABC’s sales are expected to increase by 15%. By what percentage is the operating income expected to increase?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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am. 208.
Assume that today is December 31, 2021, and that the following information applies to Abner Airlines: After-tax operating income [EBIT(1 - T)] for 2022 is expected to be $600 million. The depreciation expense for 2022 is expected to be $90 million. The capital expenditures for 2022 are expected to be $250 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 5% per year. The required return on equity is 15%. The WACC is 9%. The firm has $193 million of nonoperating assets. The market value of the company's debt is $2.918 billion. 230 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.
Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $25 million. The firm's free cash flow is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 9%; the market value of the company's debt is $2.15 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate…
I need some explanation of a problem. I ended up with the right answer but I'm not quite sure how I did. Here is the question: Garlington Technologies Inc.'s 2019 financial statements are shown here. Suppose that in 2020 sales increase to $4.4 million and that 2020 dividends will increase to $200,000. Forecasting the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 12%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Answer $98,000 Income statement for December 31, 2019 Sales $4,000,000 Operating costs 3,200,000 EBIT $800,000 Interest 120,000 Pre-tax earnings $680,000 Taxes (25%) 170,000 Net income $510,000 Dividends $190,000 Balance Sheets as of December 31, 2019…
Assume that today is December 31, 2019, and that the following information applies to Abner Airlines: After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $650 million. The depreciation expense for 2020 is expected to be $70 million. The capital expenditures for 2020 are expected to be $250 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 7% per year. The required return on equity is 15%. The WACC is 11%. The firm has $198 million of non-operating assets. The market value of the company's debt is $3.450 billion. 330 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.
The most recent financial statements for Crosby, Incorporated, follow. Sales for 2021 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Sales Costs Other expenses CROSBY, INCORPORATED 2020 Income Statement Earnings before interest and taxes Interest paid Taxable income Taxes (24%) Net income Dividends Addition to retained earnings Current assets Cash Accounts receivable Inventory Total Total assets $ 23,440 50,584 Fixed assets Net plant and equipment $ 224,000 EFN $ 25,640 35,100 71,780 $ 132,520 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets $ 767,000 623,000 31,000 $ 356,520 $ 113,000 15,600 $ 97,400 23.376 $ 74,024 Liabilities and Owners' Equity Current liabilities Accounts payable Notes payable Total Long-term debt Owners' equity Common stock and paid-in surplus…
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.
Given the forecast below, estimate the fair market value per share of Kenmore Air's equity at the end of 2017 if the company has 50 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $300 million. Assume that after 2021, earnings before interest and tax will remain constant at $220 million, depreciation will equal capital expenditures in each year, and working capital will not change. Kenmore Air's weighted- average cost of capital is 11 percent and its tax rate is 40 percent. Forecast for Kenmore Air, Inc. Year 2018 2019 2020 2021 -40 85 97 112 Free cash flow ($ millions)
Rhodes Corporation’s financial statements are shown after part f. Suppose the federalplus- state tax corporate tax is 25%. Answer the following questions.a. What is the net operating profit after taxes (NOPAT) for 2020?b. What are the amounts of net operating working capital for both years?c. What are the amounts of total net operating capital for both years?d. What is the free cash flow for 2020?e. What is the ROIC for 2020?f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.)
Given the most recent financial statements for FY2023. Sales for FY2024 are expected to grow by 10 percent. The following assumption must be held in the pro forma financial statements. The tax rate (percentage), the interest expense ($ amount), and the dividend payout ratio (percentage) will remain constant. COGS, SGA, Depreciation, all current asset accounts, Net PPE, intangibles, other assets, and accounts payable increase spontaneously with sales. Calculate the internal growth rate if the firm operates at full capacity and no new debt or equity is issued. (Enter percentages as decimals and round to 4 decimals) MSFT ($ in millions, shares in millions) Income Statement Sales COGS Gross Profit Research and Dev. SGA FY2023 211,915 65,863 146,052 27,195 16653 Depreciation 13681 Operating Income, EBIT 88,523 Interest Expense 1968 Pretax income, EBT 86,555 Taxes 16950 Net income 69,605 32,902 36,703 Retained Earnings Dividends Price per share Shares outstanding 330.24 7,430 Balance Sheet…
Calculate Average Annual Growth rate (AAGR) of Oman Cement which has the following returns. 2020-21 Beginning value OMR 1550 End of Year 1 OMR 1850 End of Year 2 OMR 1990 End of Year 3 OMR 2290 End of Year 4 OMR 2560
Morrissey Technologies Inc.'s 2019 financial statements are shown here. Suppose that in 2020, sales increase by 10% over 2019 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2019 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its operating costs/sales ratio to 87.5% and increase its total liabilities-to-assets ratio to 30%. (It believes its liabilities- to-assets ratio currently is too low relative to the industry average.) The firm will raise 30% of the 2020 forecasted interest-bearing debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short- and long-term debt) is 12.5%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.a. Construct the forecasted financial…