5. Firm ABC is expecting a significant growth in revenue in the next few years. Before...

 

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5. Firm ABC is expecting a significant growth in revenue in the next few years. Before conducting a financial forecast, Firm ABC would like to analyze its internal growth rate and external funding needs based on the expected growth. We are given Tables 3 and 4 below. Assume we are at the end of 2020. Please answer the following questions: (20 points) (Use 2 decimal places for percentages, for example 1.23%. Use 2 decimal places for dollar amount, for example $1.23.) a. What is the internal growth rate (%) for Firm ABC? Use the External Fund Needed (EFN) method, NOT the ROA method. (10 points) b. Assume that Firm ABC sets a target revenue growth rate of 35% and plans to retain all profits (i.e., no dividend payments), how much external financing (S) will it need to support this growth target? (10 points) Table 3. 2020 Income Statement (in $) Sales 3,000,000 Cost of Goods Sold 2,400,000 Gross Profit 600,000 Selling and General & Administrative 215,000 Expenses Fixed Expenses 90,000 Depreciation 25,000 Earnings before Interest and Taxes (EBIT) 270,000 Interest Expense 66,000 Earnings before Taxes 204,000 Taxes (at 40%) 81,600 Net Income 122,400 Retained Earnings 73,440 Table 4. 2020 Balance Sheet (in $) Assets Cash and marketable securities 48,000 Accounts receivables 150,000 Inventory 335,000 Total Current Assets 533,000 Property, Plant and Equipment (PP&E) 560,000 Accumulated Depreciation 125,000 Net PP&E 435,000 Total Assets 968,000 Liabilities and equity Accounts payable 128,000 Notes payable 250,000 Other current liabilities 46,000 Total Current Liabilities 424,000 Long term debt 300,000 Total Liabilities 724,000 Equity 155,560 Cumulated Retained Earnings 88,440 Total Liabilities and equity 968,000 5. Firm ABC is expecting a significant growth in revenue in the next few years. Before conducting a financial forecast, Firm ABC would like to analyze its internal growth rate and external funding needs based on the expected growth. We are given Tables 3 and 4 below. Assume we are at the end of 2020. Please answer the following questions: (20 points) (Use 2 decimal places for percentages, for example 1.23%. Use 2 decimal places for dollar amount, for example $1.23.) a. What is the internal growth rate (%) for Firm ABC? Use the External Fund Needed (EFN) method, NOT the ROA method. (10 points) b. Assume that Firm ABC sets a target revenue growth rate of 35% and plans to retain all profits (i.e., no dividend payments), how much external financing (S) will it need to support this growth target? (10 points) Table 3. 2020 Income Statement (in $) Sales 3,000,000 Cost of Goods Sold 2,400,000 Gross Profit 600,000 Selling and General & Administrative 215,000 Expenses Fixed Expenses 90,000 Depreciation 25,000 Earnings before Interest and Taxes (EBIT) 270,000 Interest Expense 66,000 Earnings before Taxes 204,000 Taxes (at 40%) 81,600 Net Income 122,400 Retained Earnings 73,440 Table 4. 2020 Balance Sheet (in $) Assets Cash and marketable securities 48,000 Accounts receivables 150,000 Inventory 335,000 Total Current Assets 533,000 Property, Plant and Equipment (PP&E) 560,000 Accumulated Depreciation 125,000 Net PP&E 435,000 Total Assets 968,000 Liabilities and equity Accounts payable 128,000 Notes payable 250,000 Other current liabilities 46,000 Total Current Liabilities 424,000 Long term debt 300,000 Total Liabilities 724,000 Equity 155,560 Cumulated Retained Earnings 88,440 Total Liabilities and equity 968,000

Answer rating: 100% (QA)

a To calculate the internal growth rate using the External Fund Needed EFN method we need the follow... View the full answer