Due to a change in demand for its products, Topaz Ltd is expecting to grow at a
Question:
Due to a change in demand for its products, Topaz Ltd is expecting to grow at a rapid rate from the present time onwards. Up until now, fixed assets have only been utilised at 90 percent of total capacity. Therefore the chief financial officer needs to determine what additional funds Topaz Ltd will need to raise by the end of the current year.
Topaz sales, last year, were $90 million and the expected growth rate for sales in the current year is 40 percent. All sales are credit sales, Topaz Ltd’s net profit margin is 5 percent, and 50 percent of net profit after tax (NPAT or NI) will be paid out as a dividend. Topaz Ltd faces, in the coming year, a maximum debt ratio of 60% and a minimum current ratio of 1.6.
The balance sheet Topaz Ltd for the year that ended this morning is:
Required:
Please note that you are NOT required to create or work with a Pro-forma balance sheet.
Instead, please use the AFN equation method to answer the following:
(a) With respect to the fact that fixed assets are currently being utilized at 75 percent of capacity, compute the values of A* and L*
(b) Calculate any figures relating to Fixed Assets required for bringing this lumpy asset into the AFN equation
(c) Use the AFN equation to calculate any additional funds needed by the end of the year.
(d) What will be the figure for Total Assets in the Pro-forma balance sheet for the coming year? [Note: You are NOT required to furnish this balance sheet!]
(e) Calculate the value of funds that will have to be raised from each of these sources:(i)Long-term Debt(ii)Short-term Debt(ii)The issue of new shares.
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain