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external financing

Looking at the planning model, I have to run out the projections to 2007. What would happen if the firm would continue to expand at 10% and relied on new issues of debt to make up any required external financing. Would the standard measures of leverage, such has the debt ratio and the interest cover start to spin out of control? The company's debt ratio should not exceed 60%. Develop some projections assuming the interest rate increased from 10% to 15%.

a. Identify the steps necessary to financially plan and forecast for 2005, 2006, 2007.
b. Project future years using the growth rate assumption
c. Determine what type and amount of financing may be required, taking into account the impact on leverage ratios
d. Determine the impact of rising interest rates on future performances
e. Assess alternative capital structure and impact on debt ratio and return on equity

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Solution Preview

Note from a to e:

The financing requirement and the forecasts are attached in the Excel file.

The impact of interest rate is declining profits and requirement of extra funds. Shown in excel file.
See attached excel file.

The operating plan provides detailed implementation guidance designed to accomplish corporate objectives. It details who is responsible for what particular function, and when specific tasks are to be accomplished. The financial plan details the financial aspects of the corporation's operating plan. In addition to an analysis of the firm's current financial condition, the financial plan normally includes a sales forecast, the capital budget, the cash budget, pro forma financial statements, and the external financing plan. A ...

Solution Summary

Implications of external financing are depicted.