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 Booth Company’s sales are forecasted to double from $1,000 in 2010 to $2,000 in 2011. Here is the December 31, 2010, balance sheet:Cash$100 Accounts payable$50 Accounts receivable200Accounts receivable 200 Notes payable150Inventories200Inventories 200 Accruals50Net fixed assets500Net fixed assets 500 Long-term debt400Common stock 100Retained earnings 250Total assets$1,000 Total liabilities and equity$1,000 Booth’s fixed assets were used to only 50% of capacity during 2010, but its currentassets were at their proper levels in relation to sales. All assets except fixed assets mustincrease at the same rate as sales, and fixed assets would also have to increase at thesame rate if the current excess capacity did not exist. Booth’s after-tax profit marginis forecasted to be 5% and its payout ratio to be 60%. What is Booth’s additionalfunds needed (AFN) for the coming year?
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