The Booth Company's sales are forecasted to double from $1,000 in 2013 to $2,000 in 2014....

Transcribed Image Text:

The Booth Company's sales are forecasted to double from $1,000 in 2013 to $2,000 in 2014. Below is the December 31, 2013 balance sheet: Accounts Cash $100 payable $50 Accounts Notes receivable 200 payable 150 Inventories 200 Accruals 50 Net fixed Long-term assets 500 debt 400 Common stock 100 Retained earnings 250 Total liabilities Total assets $1,000 and Equity $1,000 1. Assume Booth is at operating at full capacity and its spontaneous liabilities grow with sales. Further, Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 60%. With this information, answer the following questions. What is Booth's additional funds needed (AFN) for the coming year? Now assume that the company pays no dividends. Assume that all other numbers, including sales, remain the same. Under this assumption, what would be the additional funds needed for the coming year? Why is this AFN different from the one in part a?d Define the self-supporting growth rate and compute it for this example. In doing so, return to the assumption that the payout ratio is 60%. Again, return to the assumption that the payout ratio is 60%. Now consider that while the current assets are being used efficiently, the fixed assets are only being used at 62.3% capacity. What will Booth's AFN needs be under this scenario? Why is it different than the one in part a? The Booth Company's sales are forecasted to double from $1,000 in 2013 to $2,000 in 2014. Below is the December 31, 2013 balance sheet: Accounts Cash $100 payable $50 Accounts Notes receivable 200 payable 150 Inventories 200 Accruals 50 Net fixed Long-term assets 500 debt 400 Common stock 100 Retained earnings 250 Total liabilities Total assets $1,000 and Equity $1,000 1. Assume Booth is at operating at full capacity and its spontaneous liabilities grow with sales. Further, Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 60%. With this information, answer the following questions. What is Booth's additional funds needed (AFN) for the coming year? Now assume that the company pays no dividends. Assume that all other numbers, including sales, remain the same. Under this assumption, what would be the additional funds needed for the coming year? Why is this AFN different from the one in part a?d Define the self-supporting growth rate and compute it for this example. In doing so, return to the assumption that the payout ratio is 60%. Again, return to the assumption that the payout ratio is 60%. Now consider that while the current assets are being used efficiently, the fixed assets are only being used at 62.3% capacity. What will Booth's AFN needs be under this scenario? Why is it different than the one in part a?