Forecasting: Jill's outside capital, Kenney retained earnings

Attached are the problems in a word file in proper format.

1 Jill's Wigs Inc. had the following balance sheet last year:

Cash $ 800 Accounts payable $ 350
Accounts receivable 450 Accrued wages 150
Inventory 950 Notes payable 2,000
Net fixed assets 34,000 Mortgage 26,500
Common stock 3,200
Retained earnings 4,000
Total liabilities
Total assets $36,200 and equity $36,200

Jill has just invented a non-slip wig for men which she expects will cause sales to double from $10,000 to $20,000, increasing net income to $1,000. She feels that she can handle the increase without adding any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much?

2 Kenney Corporation recently reported the following income statement for 2004 (numbers are in millions of dollars):

Sales $7,000
Total operating costs 3,000
EBIT $4,000
Interest 200
Earnings before tax (EBT) $3,800
Taxes (40%) 1,520
Net income available to
common shareholders $2,280

The company forecasts that its sales will increase by 10 percent in 2005 and its operating costs will increase in proportion to sales. The company's interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2005?

3 Jackson Co. has the following balance sheet as of December 31, 2004.

Assets: Claims:
Current assets $ 600,000 Accounts payable $ 100,000
Fixed assets 400,000 Accruals 100,000
Notes payable 100,000
Total current liab. $ 300,000

Long-term debt 300,000
Total equity 400,000
Total asset $1,000,000 Total claims $1,000,000

In 2004, the company reported sales of $5 million, net income of $100,000, and dividends of $60,000. The company anticipates its sales will increase 20 percent in 2005 and its dividend payout will remain at 60 percent. Assume the company is at full capacity, so its assets and spontaneous liabilities will increase proportionately with an increase in sales.

Assume the company uses the AFN formula and all additional funds needed (AFN) will come from issuing new long-term debt. Given its forecast, how much long-term debt will the company have to issue in 2005?

4 Snowball & Company has the following balance sheet:

Current assets $ 7,000 A/P & Accruals $ 1,500
Fixed assets 3,000 S-T (3-month) Loans 2,000
Common Stock 1,500
Ret. Earnings 5,000
Total assets $10,000 Total claims $10,000

Snowball's after-tax profit margin is 11 percent, and the company pays out 60 percent of its earnings as dividends. Its sales last year were $10,000; its assets were used to full capacity; no economies of scale exist in the use of assets; and the profit margin and payout ratio are expected to remain constant. The company uses the AFN equation to estimate funds requirements, and it plans to raise any required external capital as short-term bank loans. If sales grow by 50 percent, what will Snowball's current ratio be after it has raised the necessary expansion funds? (Note: Ignore any financing feedback effects.)

5 Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year's sales = S0 $350 Last year's accounts payable $40
Sales growth rate = g 30% Last year's notes payable (to bank) $50
Last year's total assets = A0 $500 Last year's accruals $30
Last year's profit margin = M 5% Target payout ratio 60%

6 Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?

Last year's sales = S0 $200,000 Last year's accounts payable $50,000
Sales growth rate = g 40% Last year's notes payable (to bank) $15,000
Last year's total assets = A0 $135,000 Last year's accruals $20,000
Last year's profit margin = M 20.0% Target payout ratio 25.0%