DVU Funds Needed Estimation Questions

Description

These are the simplified financial statements for Judd Enterprises.Income statementCurrentProjected Salesna1,000 Costsna 720 Profit before taxna280 Taxes (25%)na 70 Net incomena210 Dividendsna63 Balance sheetsCurrentProjected CurrentProjectedCurrent assets100115 Current liabilities7081Net fixed assets9001,080 Long-term debt400 Common stock300 Retained earnings230

Refer to the Judd Enterprises financial statements. What is Judd’s projected retained earnings under this plan?

2. Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company’s operations next year, and he wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. 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$350Last year’s accounts payable$40Sales growth rate = g30%Last year’s notes payable$50Last year’s total assets = A0*$850Last year’s accruals$30Last year’s profit margin = PM5%Target payout ratio

3. In your internship with Lewis, Lee, & Taylor Inc. you have been asked to forecast the firm’s additional funds needed (AFN) for next year. The firm is operating at full capacity. 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$200,000Last year’s accounts payable$50,000Sales growth rate = g40%Last year’s notes payable$15,000Last year’s total assets = A0*$132,500Last year’s accruals$20,000Last year’s profit margin = PM20.0%Target payout ratio25.0%

4. You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 35%, which the firm’s investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.

Last year’s sales = S0$300.0Last year’s accounts payable$50.0Sales growth rate = g40%Last year’s notes payable$15.0Last year’s total assets = A0*$500Last year’s accruals$20.0Last year’s profit margin = PM20.0%Initial payout ratio

5. Weber Interstate Paving Co. had $450 million of sales and $225 million of fixed assets last year, so its FA/Sales ratio was 50%. However, its fixed assets were used at only 80% of capacity. If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?

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