Questions: 1. If sales are projected to increase by 10% during 2021, use the additional fund need
Question:
Questions:
1. If sales are projected to increase by 10% during 2021, use the additional fund need method (AFN) to determine Microtech’s external fund requirement.
2. Find the self-supporting growth rate of Microtech Inc.?
Exercise 4.2
• ABC Corporation operated at full capacity in 2020. It is expected that ABC will grow in the future, thus, it may need to raise funds from external sources. The followings show the financial statement and information regarding the expected future growth of the corporation. Use the following information to forecast the income statements and balance sheets in 2021. Find the amount of ABC’s additional funds needed using the forecast financial statement method.
- Marketing manager forecasted a sales growth of 12% in 2021.
- Cost of goods sold as well as selling, general, and administrative expenses in 2021 are forecasted to increase by the same percentage as sales.
- To manage its cash holding and marketable securities investment in 2021, the management has planned to reduce the holding of cash by 10% from $52,500 in 2020. The amount of reduction in cash holding will instead invest in marketable securities. Assume cash and marketable securities do not earn any interest income.
- Accounts receivable, inventories, net fixed assets, and spontaneous liabilities are forecasted to increase by 10% from their respective values in 2020.
- Interest rate charge of all debt is equal to 10%.
- Any additional funds if needed will be financed only by issuing notes payable.
- In 2021, the board members will retain only 10% of their net income available to common stockholders and pays out the remaining as common stock dividends.
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham