Question

Upton Computers makes bulk purchases of small computers stocks them in conveniently located warehouses ships them to its chaun or 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 shown here

Cash $3.5

Receivables 26.0

Inventories 58.0

Total current assets 87.5

Net fixed assets 35.0

Total assets 122.5

Accounts Payable $9.0

Notes Payable 18.0

Line of Credit 0

Accruals 8.5

Total current liabilities 35.5

Mortgage loan 6.0

Common stock 15.0

Retained Earnings 66.0

Total liabilities and equity 122.5

Sales for 2016 were $200 million and net income for the year was $6 million so the firms peofit margin was 3.0%. Upton paid dividends of $2.4 million to common stockholders so its payout ratio was 40%, and it operated at full capacity. Assume that all assets/sales ratios (Spotaneous liabilities) / sales ratios, the profit margin, and the payout ratio remains constant in 2017.

a. If sales are projected to increase by $40 million or 20% during 2017 use the AFN equation to detetmine Uptons projected external capital requirements.

b. Using the AFN equation determine Uptons self supporting growth rate . That is what is the maximum growth rate the firm cam achieve without having to employ nonspontaneous external funds?

c.Use the forecasted financial statement method

to forecast Utons balance sheet for December 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected. Assume Uptons profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of line of credit is taken out on last day of e year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.

Answer 1