What is the maximum growth rate the firm can achieve

Assignment Help Financial Management

Reference no: EM132035311

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, 2013, is shown here (millions of dollars):

Cash	$ 3.5	Accounts payable	$ 9.0
Receivables	26.0	Notes payable	18.0
Inventories	58.0	Line of credit	0
Total current assets	$ 87.5	Accruals	8.5
Net fixed assets	35.0	Total current liabilities	$ 35.5
		Mortgage loan	6.0
		Common stock	15.0
		Retained earnings	66.0
Total assets	$122.5	Total liabilities and equity	$122.5

Sales for 2013 were $325 million and net income for the year was $9.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3.9 million to common stockholders, so its payout ratio was 40%.

Its tax rate is 40%, 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 2014. Do not round intermediate calculations.

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.

Reference no: EM132035311

Questions Cloud

Think of a company you have heard about recently that has : For organizations, long-term investments can be acquiring another company, building a larger factory, developing a new product line, etc.

Creation of multiple deliverables and mediums : The project involves research and analysis or the target market and the creation of multiple deliverables and mediums.

Calculate the first payment and indicate which party pays : Assume that floating-rate payments will be made on the basis of 180/360 and fixed-rate payments will be made on the basis of 180/365.

Discuss the pros and cons of this strategy : The US government has more than $16 trillion in debt outstanding in the form of Treasury bills, notes, and bonds in 2013.

What is the maximum growth rate the firm can achieve : What is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?

Compute the equivalent annual cost for each machine : The company requires a 15% rate of return and uses straight-line depreciation to a zero book value over the life of its equipment.

The expected price of the stock at the end of this year : Unlimited Corp. just paid a $.50 dividend per share and plans to double the dividend each of the next 2 years, and then dividends will grow 5%.

Determine the breakeven ebit : The firm restructures itself by issuing 200 new par bonds with face value $1,000 and 8% coupon. The firm uses the proceeds to repurchase outstanding stock.

How much equity financing is required for next year : If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?

User Account

All Pages