Tomas Co. has the following balance sheet as of December 31, 2021. Current assets 180,000.00 Fixed assets 120,000.00 Total assets 300,000.00 Accounts payable 40,000.00 Accrued liabilities 20,000.00 Notes payable 50,000.00 Other Long-term debt 75,000.00 Total Equity 115,000.00 Total liabilities and equity 300,000.00 In 2021, Tomas Co. reported sales of P1,500,0000, net income of P30,000, and dividends of P18,000. The company expected its sales to increase by 20% by next year and its retention ratio will remain at 40%. Assume that Tomas Co. is operating at full capacity and it uses the AFN approach in determining the amount of external financing needed. How much is the sales for 2022? Using Problem 8, how much is the increase in retained earnings for the purpose of computing the AFN? Using Problem 8, how much external funds needed for the year 2022?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
PROBLEM 8:
Tomas Co. has the following
Current assets 180,000.00
Fixed assets 120,000.00
Total assets 300,000.00
Accounts payable 40,000.00
Accrued liabilities 20,000.00
Notes payable 50,000.00
Other Long-term debt 75,000.00
Total Equity 115,000.00
Total liabilities
and equity 300,000.00
In 2021, Tomas Co. reported sales of P1,500,0000, net income of P30,000, and dividends of P18,000. The company expected its sales to increase by 20% by next year and its retention ratio will remain at 40%. Assume that Tomas Co. is operating at full capacity and it uses the AFN approach in determining the amount of external financing needed.
How much is the sales for 2022?
Using Problem 8, how much is the increase in
Using Problem 8, how much external funds needed for the year 2022?
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