Additional Financing Required
Not what you're looking for?
The 2007 balance sheet for American Pulp and Paper is shown below (in millions of dollars):
Cash $3.0
Accounts Receivable 3.0
Inventory 5.0
Current Assets $11.0
Fixed Assets $3.0
Total Assets $14.0
Accounts Payable $2.0
Notes Payable 1.5
Current Liabilities $3.5
Long term Debt $3.0
Common Equity 7.5
Total Liabilities
and Equity $14.0
In 2007, sales were $60 million. In 2008, management believes that sales will increase by 20 percent to a total of $72 million. The profit margin is expected to be 5 percent, and the dividend payout ratio is targeted at 40 percent. No excess capacity exists. What is the additional financing requirement (in million) for 2008 using the formula method?
Purchase this Solution
Solution Summary
The 2007 balance sheet for American Pulp and Paper is shown below (in millions of dollars):
Cash $3.0
Accounts Receivable 3.0
Inventory 5.0
Current Assets $11.0
Fixed Assets $3.0
Total Assets $14.0
Accounts Payable $2.0
Notes Payable 1.5
Current Liabilities $3.5
Long term Debt $3.0
Common Equity 7.5
Total Liabilities
and Equity $14.0
In 2007, sales were $60 million. In 2008, management believes that sales will increase by 20 percent to a total of $72 million. The profit margin is expected to be 5 percent, and the dividend payout ratio is targeted at 40 percent. No excess capacity exists. What is the additional financing requirement (in million) for 2008 using the formula method?
Solution Preview
The basic formula for Additional Funds Needed is
AFN = ((A*/S0)*(S1-S0))- ((L*/S0)*(S1-S0)) - MS1(RR)
Where:
A* = Assets tied directly to sales and will increase
L* = Spontaneous liabilities that will be affected by sales.
S0 = Sales during the last year
S1 = ...
Purchase this Solution
Free BrainMass Quizzes
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Basics of corporate finance
These questions will test you on your knowledge of finance.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations