Reference no: EM132971222
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers.
Upton's balance sheet as of December 31, 2019, is shown here (millions of dollars):
Cash$ 3.5
ccounts payable$ 9.0
Receivables26.0
Notes payable18.0
Inventories58.0
Line of credit0
Total current assets$ 87.5
Accruals8.5
Net fixed assets35.0
Total current liabilities$ 35.5
Mortgage loan6.0
Common stock15.0
Retained earnings66.0
Total assets$122.5
Total liabilities and equity$122.5
- Sales for 2019 were $425 million and net income for the year was $12.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.1 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020. Do not round intermediate calculations.
Problem 1: If sales are projected to increase by $85 million, or 20%, during 2020, use the AFN equation to determine Upton's projected external capital requirements. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.
Problem 2: Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
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