6 - 1 AFN EQUATION Carter Corporation’s sales are expected to increase from $5
million in 2015 to $6 million in 2016, or by 20%. Its assets totaled $3 millions at the
end of 2015. Carter is at full capacity, so its assets must grow in proportion to
projected sales. At the end of 2015, current liabilities are $1 millions, 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.
AFN = (A0/S0)∆S - (L0/S0)∆S- M(S1)(RR)
AFN = $3 million ($1 million) - $1 million ($1 million) - (0.05)($6 million)(0.3)
$5 million
$5 million
= (0.6)($1 million) - (0.2)($1 million) - ($300,000)(0.3)
= $600,000 - $200,000 - $90,000
AFN = $310,000
6 - 2 AFN EQUATION Refer to problem 6 -1. What additional funds would be needed if
the company’s year-end 2015 assets had been $4 million ? Assume that all other
number are the same. Why is this AFN different from the one you found in Problem
6-1? Is the company’s “capital intensity” the different of different ? Explain.
AFN = (A0/S0)∆S - (L0/S0)∆S- M(S1)(RR)
AFN = $4 million ($1 million) - $1 million ($1 million) - (0.05)($6 million)(0.3)
$5 million
$5 million
= (0.8)($1 million) - (0.2)($1 million) - ($300,000)(0.3)
= $800,000 - $200,000 - $90,000
AFN = $510,000
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6 - 3 AFN EQUATION Refer to problem 6-1 and assume that the company had $3
million in assets at the end of 2015. However, now assume that the company pays no
dividens. Under these assumptions, what the additional funds would be needed for
the coming year ? Why is this AFN different from the one you found in problem 61?
AFN = (A0/S0)∆S - (L0/S0)∆S- M(S1)(RR)
AFN = $3 million ($1 million) - $1 million ($1 million) - (0.05)($6 million)(1-0)
$5 million
$5 million
= (0.6)($1 million) - (0.2)($1 million) - ($300,000)(1)
= $600,000 - $200,000 - $300,000
AFN = $100,000
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6 - 4 PRO FORMA INCOME STATEMENT Austin Grocers recently reported the
following 2015 income statement ( in millions of dollars).
Sales
Operating cost including deprecition
EBIT
Interest
EBT
Taxes (40%)
Net Income
Dividends
Additional to retained earnings
$700
($500)
$200
($40)
$160
($64)
$96
($32)
$64
For the coming year, the company is forecasting a 25% increase in sales, and it expects
that its year-end operating costs, including depreciation, will equal 70% of sales. Austin’s
tax rates, interest expences, and dividend payout ratio are all expected to remain constant.
a) What is Austin’s projected 2016 net income ?
Sales
Operating cost including deprecition
EBIT
Interest
EBT
Taxes (40%)
Net Income
Dividends
Additional to retained earnings
2015
$700
($500)
$200
($40)
$160
($64)
$96
($32)
$64
Austin’s projected 2016 net income = $133.5
b) What is the expected growth rate in Austin’s dividends ?
= ($44.5 - $32) x 100
$32
= 39.06% / 40%
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2016
$875
($612.5)
$262.5
($40)
$222.5
($89)
$133.5
($44.5)
$89
6 - 12 EXCESS CAPACITY Edney Manufacturing Company has $2 billion in sales and
$0.6 billion in fixed assets. Currently, the company’s fixed assets are operating at 80% of
capacity.
a) What level of sales could Edney have obtained if it has been operating at full
capacity ?
Capacity sales = Actual sales / % of capacity
= $2 billion / 80%
Capacity sales = $2.5 billion
b) What is Edney target fixed assets/sales ratio ?
= $ 0.6 billion
$ 2.5 billion
Target fixed assets/sales ratio = 24%
c) If Edney’s sales increase 30%, how large of an increase in fixed assets will the
company need to meet its target fixed assets/sales ratio ?
New Sales = $ 2 billion x 1.30
= $ 2.6 billion
No added fixed assets is needed when sales are up to $ 2.5 billion. But since the
increasing in sales are $2.6 billion more than the full capacity can produce so added fixed
asset are needed.
Target fixed assets/sales ratio = Fixed Assets
$ 2.6 billion
24% = Fixed Assets
$ 2.6 billion
Fixed Assets = $ 0.624 billion
Added Fixed Assets = New Fixed Assets - Actual Fixed Assets
= $ 0.624 billion - $ 0.6 billion
Added Fixed Assets = $ 0.024 billion / $ 24,000,000
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2. Berdasarkan kepada maklumat dibawah, berapakah kadar pertumbuhan maksimum:Margin keuntungan = 4.3%
Perolehan aset = 2.10
Nisbah hutang = 0.30
Nisbah pembayaran = 15%
a) Tanpa pembiayaan luar (IGR)
ROA = Margin Keuntungan x Perolehan Aset
= (0.043) x 2.10
= 9.03 %
IGR = ROA x b
1- ( ROA x b)
= (0.0903)(1-0.15)
1 - [(0.0903)(1-0.15)]
= 0.07676 x 100
1- 0.07676
IGR = 8.31%
b) Dengan penggunaan sumber pembiayaan dalam dan luar (SGR)
ROE = Margin Keuntungan x Perolehan Aset x Pekali Ekuiti
= (0.043) x (2.10) x (1 - 0.015)
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