Calculate target fixed assets or sales ratio

Assignment Help Finance Basics

Reference no: EM1354614

17-1

AFN EQUATION Carter Corporation's sales are expected to increase from $5 million in problems 2008 to $6 million in 2009, or by 20%. Its assets totaled $3 million at the end of 2008. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2008, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds Carter will need for the coming year.

17-5

EXCESS CAPACITY
Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

a. What level of sales could Walter Industries have obtained if it had been operating at full capacity?

b. What is Walter's Target fixed assets/Sales ratio?

c. If Walter's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio?

17-7

PRO FORMA INCOME STATEMENT At the end of last year, Roberts Inc. reported the following income statement (in millions of dollars):

Sales $3,000
Operating costs excluding depreciation 2,450
EBITDA $ 550
Depreciation 250
EBIT $ 300
Interest 125
EBT 175
Taxes (40%) 70
Net income $ 105
Looking ahead to the following year, the company's CFO has assembled this information:
? Year-end sales are expected to be 10% higher than the $3 billion in sales generated last year.
? l Year-end operating costs, excluding depreciation, are expected to equal 80% of year end sales.
? Depreciation is expected to increase at the same rate as sales.
? Interest costs are expected to remain unchanged.
? The tax rate is expected to remain at 40%.
On the basis of that information, what will be the forecast for Roberts' year-end net income?

17-10

REGRESSION AND RECEIVABLES Edwards Industries has $320 million in sales. The company expects that its sales will increase 12% this year. Edwards' CFO uses a simple linear regression to forecast the company's receivables level for a given level of projected sales. On the basis of recent history, the estimated relationship between receivables and sales (in millions of dollars) is as follows:
Receivables = $9.25 + 0.07(Sales)

18-1

OPTIONS A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share.
a. What is the exercise value of the call option?
b. What is the premium on the option?

18-2

OPTIONS The exercise price on one of Flanagan Company's call options is $15, its exercise value is $22, and its premium is $5. What are the option's market value and the stock's current price?

Reference no: EM1354614

Questions Cloud

Determine plaintext and key from vigenere cipher : Below are ciphertext from Vigenere cipher. Determine plaintext and key. Give a clearly written description of steps you followed to decrypt each ciphertext.

What is the velocity v of the smaller fish before lunch : What is the target's speed just after the bullet emerges.What is the velocity v of the smaller fish before lunch.

Eastman kodaks key stakeholders : Eastman Kodak's key stakeholders - Find and describe Eastman Kodak's key stakeholders. What is their influence on strategy?

Bad debts or uncollectible accounts : Which of the following methods of determining bad debt expense does not properly match expense against revenue?

Calculate target fixed assets or sales ratio : Carter Company's sales are expected to increase from $5 million in problems 2008 to $6 million in 2009, or by 20 percent. Its assets totaled $3 million at the end of 2008.

Explain international price-fixing scheme that drove up : Explain Bayer AG was indicted as a participant in an international price-fixing scheme that drove up the costs of rubber chemicals used to make shoes

Theoretical approaches in clinical psychology : Identify at least one contributor to each of the four theoretical approaches in clinical psychology, along with his or her specific theories or views about human behavior.

Review eastman kodaks values : Explain company's overall operations and strategy are aligned to support those values and achieve the mission.

Examine audit risk model : A staff auditor was listening to a conversation between two senior auditors regarding the audit risk model. Following are some statements made in that conversation.

User Account

All Pages