FIN515 Week 6 Homework Assignment

Apr 24th, 2015
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FIN515 Week 6 Homework Assignment

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Complete the following graded homework assignment in a Word document named "FIN515_Homework6_yourname". Show the details of your calculation/work in your answer to the Problems.Problems (p. 503) 12-1 AFN Equation Problems (pp. 549-550) 13-2 Value of Operations of Constant Growth Firm 13-3 Horizon Value 13-4 EROIC and MVA of Constant Growth Firm (12-1)AFN EquationBaxter Video Products' sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter's additional funds needed for the coming year.Ans:As per the Textbook, the AFN Equation is -AFN = (a0 / S0) * deltaS - (L0 / S0) * deltaS - M*S1*(1-POR)a0 = $3 millionS0 = $5 milliondeltaS = $1 millionL0 = $500,000S1 = $6 millionM = after tax profit margin

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