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Use the AFN equation to estimate Hatfield’s required new external capital for 2020 if the sales growth rate is 11.1%. Assume that the firm’s 2019 ratios will remain the same in 2020. (Hint: Hatfield was operating at full capacity in 2019.)

Use the AFN equation to estimate Hatfield’s required new external capital for 2020 if the sales growth rate is 11.1%. Assume that the firm’s 2019 ratios will remain the same in 2020. (Hint: Hatfield was operating at full capacity in 2019.)

Essentials Of Investments
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
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Use the AFN equation to estimate Hatfield’s required new external capital for 2020 if the sales growth rate is 11.1%. Assume that the firm’s 2019 ratios will remain the same in 2020. (Hint: Hatfield was operating at full capacity in 2019.)

**Chapter 12: Corporate Valuation and Financial Planning** **Page 535** **Selected Additional Data for 2019** - **Ratios:** - (Op. costs)/Sales: Hatfield 90%, Industry 88% - Depr./FA: Hatfield 10%, Industry 12% - Cash/Sales: Hatfield 2%, Industry 2% - Receivables/Sales: Hatfield 14%, Industry 16% - Inventories/Sales: Hatfield 11%, Industry 11% - Fixed assets/Sales: Hatfield 46%, Industry 49% - (Acc. pay. & accr.)/Sales: Hatfield 12%, Industry 15% - Tax rate: Hatfield 25%, Industry 25% - Target WACC: Hatfield 11%, Industry 11% - Interest rate on debt: Hatfield 8%, Industry 7% - **Profitability & Ratios:** - Profit margin (M): Hatfield 3.30%, Industry 5.60% - Return on assets (ROA): Hatfield 4.6%, Industry 9.5% - Return on equity (ROE): Hatfield 10.0%, Industry 15.1% - Sales/Assets: Hatfield 1.39, Industry 1.69 - Asset/Equity: Hatfield 2.15, Industry 1.57 - Debt/TA: Hatfield 28.2%, Industry 19.3% - CR ratio: (Total liabilities)/(Total assets): Hatfield 53.5%, Industry 37.3% - Times interest earned: Hatfield 3.8, Industry 11.7 - P/E ratio: Hatfield 8, Industry 16.0 - OP ratio: NOPAT/Sales: Hatfield 4.5%, Industry 6.1% - CR ratio: (Total op. capital)/Sales: Hatfield 53.0%, Industry 49.0% - ROIC: Hatfield 8.5%, Industry 13.0% **Analysis Questions:** a. Evaluate Hatfield’s performance compared to industry averages, identifying strengths and weaknesses using the given data and the DuPont equation. b. Use the Additional Funds Needed (AFN) equation
Transcribed Image Text:**Chapter 12: Corporate Valuation and Financial Planning** **Page 535** **Selected Additional Data for 2019** - **Ratios:** - (Op. costs)/Sales: Hatfield 90%, Industry 88% - Depr./FA: Hatfield 10%, Industry 12% - Cash/Sales: Hatfield 2%, Industry 2% - Receivables/Sales: Hatfield 14%, Industry 16% - Inventories/Sales: Hatfield 11%, Industry 11% - Fixed assets/Sales: Hatfield 46%, Industry 49% - (Acc. pay. & accr.)/Sales: Hatfield 12%, Industry 15% - Tax rate: Hatfield 25%, Industry 25% - Target WACC: Hatfield 11%, Industry 11% - Interest rate on debt: Hatfield 8%, Industry 7% - **Profitability & Ratios:** - Profit margin (M): Hatfield 3.30%, Industry 5.60% - Return on assets (ROA): Hatfield 4.6%, Industry 9.5% - Return on equity (ROE): Hatfield 10.0%, Industry 15.1% - Sales/Assets: Hatfield 1.39, Industry 1.69 - Asset/Equity: Hatfield 2.15, Industry 1.57 - Debt/TA: Hatfield 28.2%, Industry 19.3% - CR ratio: (Total liabilities)/(Total assets): Hatfield 53.5%, Industry 37.3% - Times interest earned: Hatfield 3.8, Industry 11.7 - P/E ratio: Hatfield 8, Industry 16.0 - OP ratio: NOPAT/Sales: Hatfield 4.5%, Industry 6.1% - CR ratio: (Total op. capital)/Sales: Hatfield 53.0%, Industry 49.0% - ROIC: Hatfield 8.5%, Industry 13.0% **Analysis Questions:** a. Evaluate Hatfield’s performance compared to industry averages, identifying strengths and weaknesses using the given data and the DuPont equation. b. Use the Additional Funds Needed (AFN) equation
**Educational Resource: Evaluating Corporate Valuation and Governance** ### Analyzing Return on Invested Capital (ROIC) 1. **Calculate ROIC and Growth Rate**: - ROIC is derived as NOPAT divided by total net operating capital. Examine the last year’s ROIC and growth rate in free cash flow (FCF). - Consider the long-term growth rate in FCF post-forecast period with constant ratios. Explore how Hensley's value might increase with growth equivalent to the ROIC. - If ROIC exceeds WACC, growth adds value. Evaluate if exceeding WACC plus g indicates future growth benefits. 2. **Current Value of Operations**: - Assess the horizon value at the end of the forecast. Compare with current total net operating capital for present valuation. 3. **Intrinsic Price Calculation**: - Derive per share intrinsic price of common equity as of December 31, 2019. ### Mini Case: Hatfield Medical Supply Hatfield's stock lagged behind industry averages, prompting a change in leadership. Jaiden Lee, with specialized financial expertise, joins to improve strategic forecasts. The prior CFO outputs data for Lee, aiming at elevating performance to meet industry standards. #### Financial Statements Overview **Balance Sheet as of 12/31/2019 (in Millions)**: - **Assets**: - Cash: $90 - Accounts Receivable: $1,260 - Inventories: $1,440 - Total Current Assets (CA): $2,790 - Net Fixed Assets: $3,600 - **Total Assets**: $6,390 - **Liabilities and Equity**: - Accounts Payable & Accruals: $1,620 - Line of Credit: $0 - Total Current Liabilities (CL): $1,620 - Long-term Debt: $180 - Total Liabilities: $1,800 - Common Stock: $2,100 - Retained Earnings: $870 - Total Common Equity: $2,970 - **Total Liabilities & Equity**: $6,390 **Income Statement for Year Ending 2019**: - Sales: $9,000.9 - Operating Costs (excluding depreciation): $8,100.9 - Depreciation: $360 - EBIT
Transcribed Image Text:**Educational Resource: Evaluating Corporate Valuation and Governance** ### Analyzing Return on Invested Capital (ROIC) 1. **Calculate ROIC and Growth Rate**: - ROIC is derived as NOPAT divided by total net operating capital. Examine the last year’s ROIC and growth rate in free cash flow (FCF). - Consider the long-term growth rate in FCF post-forecast period with constant ratios. Explore how Hensley's value might increase with growth equivalent to the ROIC. - If ROIC exceeds WACC, growth adds value. Evaluate if exceeding WACC plus g indicates future growth benefits. 2. **Current Value of Operations**: - Assess the horizon value at the end of the forecast. Compare with current total net operating capital for present valuation. 3. **Intrinsic Price Calculation**: - Derive per share intrinsic price of common equity as of December 31, 2019. ### Mini Case: Hatfield Medical Supply Hatfield's stock lagged behind industry averages, prompting a change in leadership. Jaiden Lee, with specialized financial expertise, joins to improve strategic forecasts. The prior CFO outputs data for Lee, aiming at elevating performance to meet industry standards. #### Financial Statements Overview **Balance Sheet as of 12/31/2019 (in Millions)**: - **Assets**: - Cash: $90 - Accounts Receivable: $1,260 - Inventories: $1,440 - Total Current Assets (CA): $2,790 - Net Fixed Assets: $3,600 - **Total Assets**: $6,390 - **Liabilities and Equity**: - Accounts Payable & Accruals: $1,620 - Line of Credit: $0 - Total Current Liabilities (CL): $1,620 - Long-term Debt: $180 - Total Liabilities: $1,800 - Common Stock: $2,100 - Retained Earnings: $870 - Total Common Equity: $2,970 - **Total Liabilities & Equity**: $6,390 **Income Statement for Year Ending 2019**: - Sales: $9,000.9 - Operating Costs (excluding depreciation): $8,100.9 - Depreciation: $360 - EBIT
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