FIN 3310 Lecture Notes - Lecture 4: Dividend Payout Ratio, Accounts Payable, Retained Earnings

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apricotclam40

13 Feb 2017

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Method 1: percentage of sales balance sheet method. E x a m p l e : carson enterprises is in the midst of its annual planning exercise. The following information should be used to projected sales of million for next year. The company has a 5% plan next year"s finances. Sales are currently million with net profit margin. It"s current assets equal million, while its fixed assets are million. The best estimate for next year is that current assets and fixed assets will equal the current proportion of sales. Also, spontaneous liabilities will equal the current proportion of. At the present time, the firm has accounts payable of . 5 million, long-term debt of million and common equity totaling. . 5 million (including million in retained earnings). Carson enterprises plans to continue paying the same dividend payout ratio (this year the dividend was ,000). Estimating next period"s dividend payout & retained earnings.

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Sambonoza Enterprises projects its sales next year to be $5 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections):

1. Curret assets will equal 26 percent of sales, and fixed assets will remain at their current level of $1 million.

2. Common equity is currently $0.7 million, and the firm pays out half of its after-tax earning in dividends.

3. The firm has short-term payable and trade credit that normally equal 9 percent of sales, and it has no long-term debt outstanding.

What are Sambonoza's financing needs for the coming year?

emeraldmole767

Beasley Industries' sales are expected to increase from $5 million in 2013 to $6 million in 2014, or by 20%. Its assets totaled $2 million at the end of 2013. Beasley is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2013, current liabilities are $740,000, consisting of $160,000 of accounts payable, $350,000 of notes payable, and $230,000 of accrued liabilities. Its profit margin is forecasted to be 4%, and its dividend payout ratio is 60%. Using the AFN equation, forecast the additional funds Beasley will need for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.â

ochrebadger616

1. The Podrasky Corporation is considering an $80 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Next year the company expects to earn $55 million after interest and taxes. The company also plans to increase its dividends from $10 million to $15 million. If the expansion program is accepted, the company expects its current assets needs to increase by approximately $25 million next year. Long-term debt retirement obligations total $2 million next year and depreciation is expected to be $20 million. No fixed assets are expected to be sold next year.

a. $28 million

b. $33 million

c. $47 million

d. $38 million

2. TTT Inc has current sales of $40 million. Sales are expected to grow to $65 million next year. TTT currently has accounts receivable of $25 million, inventories of $10 million, and the net fixed assets of $30 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $15 million to a new level of $22 million next year. TTT wants to increase its cash balance at the end of next year by $5 million. Earnings after taxes next year are forecasted to be $12 million. Next year, TTT plans to pay dividends of $1.5 million. How much external financing is required by TTT next year?

a. $28.125 million
b. $18.125 million
c. $16.375 million
d. $8.375 million

3. The stock of UCD has just been sold in an initial public offering at a price of $165 per share. One week after this offering, the stock has risen to $195. You believe the stock will rise to $245 over the coming year. You expect UCD to pay a $15 dividend during the coming year. If you require a rate of return of 30%, do you believe this is a good investment at the current price of $195?

a. Yes, the holding period return is 33.33% greater than 30%.
b. No, the holding period return is 25.64% less than 30%.
c. No, the holding period return is 23.08% less than 30%.
d. No, the holding period return is 15.38% less than 30%.

4. Which of the following is true?

a. If you

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FIN 3310 Lecture Notes - Lecture 4: Dividend Payout Ratio, Accounts Payable, Retained Earnings

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