FINANCIAL MANAGEMENT
16th Edition
ISBN: 9781337902601
Author: Brigham
Publisher: CENGAGE L
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Chapter 12, Problem 7P
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton’s
Sales for 2019 were $350 million, and net income for the year was $10.5 million, so the firm’s profit margin was 3.0%. Upton paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020.
- a. If sales are projected to increase by $70 million, or 20%, during 2020, use the AFN equation to determine Upton’s projected external capital requirements.
- b. Using the AFN equation, determine Upton’s self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?
- c. Use the forecasted financial statement method to
forecast Upton’s balance sheet for December 31, 2020. Assume that all additional external capital is raised as a line of credit at the end of the year. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Assume Upton’s profit margin and dividend payout ratio will be the same in 2020 as they were in 2019. What is the amount of the line of credit reported on the 2020 forecasted balance sheets? (Hint: You don’t need toforecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2020 addition toretained earnings for the balance sheet without actually constructing a full income statement.)
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Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton’s balance sheet as of December 31, 2019, is shown here (millions of dollars):
Sales for 2019 were $350 million, and net income for the year was $10.5 million, so the firm’s profit margin was 3.0%. Upton paid dividends of $4.2 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020.a. If sales are projected to increase by $70 million, or 20%, during 2020, use the AFN equation to determine Upton’s projected external capital requirements.b. Using the AFN equation, determine Upton’s self-supporting growth rate. That is, what is the maximum growth rate the firm can…
Green Technologies is a leading global end-to-end technology provider, with a portfolio of hardware, software and service solutions. In
a recent annual report, the balance sheet included the following information ($ in millions):
Current assets:
Receivables, less allowance of $289 in 2020 and
$280 in 2019
Req 1
In addition, the income statement reported sales revenue of $105,232 million for the current year. All sales are made on a credit basis.
The statement of cash flows indicates that cash collected from customers during the current year was $104,868 million. There could
have been significant recoveries of accounts receivable previously written off.
Required:
1. Compute the following ($ in millions):
Req 2A
2020
a. The amount of bad debts written off by Green during 2020 (Hint. Treat it as a plug in the gross accounts receivable
account).
b. The amount of bad debt expense that Green included in its income statement for 2020 (Hint. Treat it as a plug in the
allowance for…
For 2021, Walmart and Target had the following information (all values are in millions of dollars): Assume a 365-day year.
a. What is each company's accounts receivable days?
b. What is each company's inventory turnover?
c. Which company is managing its accounts receivable and inventory more efficiently?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Walmart
Target
(Income Statement)
Sales
572,762
106,007
Cost of Goods Sold
(Income Statement)
428,997
74,962
Accounts Receivable
(Balance Sheet)
8,279
830
Inventory
(Balance She
56,519
13,902
= X
Chapter 12 Solutions
FINANCIAL MANAGEMENT
Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - Prob. 4QCh. 12 - What is meant by the term “self-supporting growth...Ch. 12 - Suppose a firm makes the following policy changes...Ch. 12 - Broussard Skateboard’s sales are expected to...Ch. 12 - Berman & Jaccor Corporation’s current sales and...Ch. 12 - Smiley Corporations current sales and partial...Ch. 12 - Maggie’s Muffins Bakery generated $5 million in...Ch. 12 - At year-end 2019, Wallace Landscapings total...
Ch. 12 - The Booth Company’s sales are forecasted to double...Ch. 12 - Upton Computers makes bulk purchases of small...Ch. 12 - Stevens Textile Corporations 2019 financial...Ch. 12 - Hatfield Medical Supplys stock price had been...Ch. 12 - Use the AFN equation to estimate Hatfield’s...Ch. 12 - Prob. 3MC
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