South county fiberoptics projects that it will need $100 million in total assets to meet the sales projection of $130 million. The pro forma balance sheet shows accounts payable, $16 million, accrued expenses, $4 million, long-term debt, $20 million and equity, $65 million. If South County decides to meet discretionary financing needs with 5 year notes payable, how much will it need to borrow? A) $20 million B) $0, the firm has excess funds C) $10 million D) cannot be calculated without knowing the net profit margin
South county fiberoptics projects that it will need $100 million in total assets to meet the sales projection of $130 million. The pro forma balance sheet shows accounts payable, $16 million, accrued expenses, $4 million, long-term debt, $20 million and equity, $65 million. If South County decides to meet discretionary financing needs with 5 year notes payable, how much will it need to borrow? A) $20 million B) $0, the firm has excess funds C) $10 million D) cannot be calculated without knowing the net profit margin
Related questions
Additional funds needed
Morrissey Technologies Inc.'s 2012 financial statements are shown here.
| Morrissey Technologies Inc.: Balance Sheet as of December 31, 2012 | ||||
| Cash | $180,000 | Accounts payable | $360,000 | |
| Receivables | 360,000 | Notes payable | 56,000 | |
| Inventories | 720,000 | Accrued liabilities | 180,000 | |
| Total current assets | $1,260,000 | Total current liabilities | $596,000 | |
| Long-term debt | 100,000 | |||
| Fixed assets | 1,440,000 | Common stock | 1,800,000 | |
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 | |
| Morrissey Technologies Inc.: Income Statement for December 31, 2012 | |||
| Sales | $3,600,000 | ||
| Operating costs including depreciation | 3,279,720 | ||
| EBIT | $320,280 | ||
| Interest | 20,280 | ||
| EBT | $300,000 | ||
| Taxes (40%) | 120,000 | ||
| Net Income | $180,000 | ||
| Per Share Data: | |||
| Common stock price | $45.00 | ||
| Earnings per share (EPS) | $1.80 | ||
| Dividends per share (DPS) | $1.08 | ||
Suppose that in 2013, sales increase by 15% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2012 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 89.5% and increase its total debt-to-assets ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2013 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short-term and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
- Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Round your answers to the nearest cent.
Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2013 2012 2013 Pro Forma Sales $3,600,000 $ Operating costs (includes depreciation) 3,279,720 $ EBIT $320,280 $ Interest expense 20,280 $ EBT $300,000 $ Taxes (40%) 120,000 $ Net Income $180,000 $ Dividends $ $ Addition to RE $ $ Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2013 2012 2013 Pro Forma Cash $180,000 $ Accounts receivable 360,000 $ Inventories 720,000 $ Fixed assets 1,440,000 $ Total assets $2,700,000 $ Payables + accruals $540,000 $ Short-term bank loans 56,000 $ Total current liabilities $596,000 $ Long-term bonds 100,000 $ Total debt $696,000 $ Common stock 1,800,000 $ Retained earnings 204,000 $ Total common equity $2,004,000 $ Total liab. and equity $2,700,000 $ - If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In otherwords, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Round your answer to two decimal places.
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Question 1
Which of the following statements ARE CORRECT about the due diligence process? (check all that apply)
| Due diligence is a two-way process |
| Due diligence is not time consuming if done properly |
| Prospective investors will want to investigate legal, financial, and strategic matters |
| The key to success in due diligence is advance preparation and cooperation among the parties |
Question 2
Which of the following items discovered in the due diligence process could be a cause for concern by an investor, which could ultimately lead to a decision by the investor to NOT invest?
| A large shareholder loan that will be paid upon completion of the current financing |
| Significant related party transactions that are properly documented and performed on an arms-length basis |
| Large accounts payable for goods and services that are all "current" (i.e., within the terms offered by the vendor) |
| Accounts receivable from 20 very small customers which are 10 days past due |
Question 3
When negotiating term sheets with prospective investors, which of the following are correct? (check all that apply)
| Both the investor and the entrepreneur need to win |
| Compromise indicates to the investor that the entrepreneur is desperate for funding |
| Experience from past deals should be used to negotiate the current term sheet |
| Don't take everything the other side says at face value - they may be posturing |
Question 4
True or False? Valuation of startup companies can be done objectively by following traditional valuation methods.
| True |
| False Question 5 Choose that statement that is NOT correct.
|
Question 6
Which factor(s) can impact the valuation of your company?
| A well developed V1 product |
| Hot sectors |
| Management team experience |
| Early traction (revenues, partnerships, etc.) |
| All of the above Question 7 Which of the following statements about term sheets is correct? (select all that apply)
|
Question 10
Which of the following is NOT a characteristic of Preferred Stock?
| Anti-dilution provisions protect the preferred shareholder's pro-rata interests |
| Preferred stock is an equity investment with some characteristic debt |
| It is the financing vehicle of choice for venture capitalists |
| Preferred stock shareholders receive the greater of the original purchase plus accrued dividends OR a percentage of the liquidation proceeds on an âas-convertedâ basis in a standard liquidation of the company |
