FIN 515 Week 6 Homework Problem Solution Chapter 12 and 13


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FIN 515 Week 6 Homework Problem Set

(12–1) AFN Equation

Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2016 to $9.2 million in 2017. Its assets totaled $5 million at the end of 2016.

Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is ……to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.

(12–2) AFN Equation

Refer to Problem 12-1. What would be the additional funds ….. if the company’s year-end 2016 assets had been $7 million? Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at full capacity. Why is this AFN different from the one you ….. in Problem 12-1? Is the company’s “capital intensity” ratio the same or different?

(12–3)AFN Equation

Refer to Problem 12-1. Return to the assumption that the company had $5 million in assets at the end of 2016, but now assume that the company pays no dividends. Under these assumptions, what would be the additional funds …..for the coming year? Why is this AFN different from the one you ……in Problem 12-1?

(12-7) Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton’s balance sheet as of December 31, 2016, is … (millions of dollars) fin 5151 week 6

  1. If sales are ……to increase by $70 million, or 20%, during 2017, use the AFN equation to determine Upton’s projected external capital requirements fin 515 week 6 homework
  2. Using the AFN equation, determine Upton’s self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?
  3. Use the forecasted financial statement method to forecast Upton’s balance sheet for December 31, 2017. Assume that all additional external capital is ….. as a line of credit at the end of the year and is ….. (because the debt is ….. at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton’s profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit …..on the 2017 forecast balance sheets?
(13-2) Agency Conflict

What is the possible agency conflict between inside owner/managers and outside shareholders?

(13-3) Agency Conflict – Borrowers and Lenders

What are some possible agency conflicts between borrowers and lenders?


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