59.
|   What is Major Manuscripts, Inc.'s retention ratio?
Retention ratio = ($2,600 - $950)/$2,600 = 63 percent
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60.
|   Major Manuscripts, Inc. does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm's maximum rate of growth?
Retention ratio = ($2,600 - $950)/$2,600 = 0.63
Internal growth rate = [($2,600/$20,640) × 0.63]/{1 - [($2,600/$20,640) × 0.63]} = 8.69 percent |
61.
|   If Major Manuscripts, Inc. decides to maintain a constant debt-equity ratio, what rate of growth can it maintain assuming that no additional external equity financing is available.
Retention ratio = ($2,600 - $950)/$2,600 = 0.63
Sustainable growth rate = {[$2,600/($10,000 + $4,510)] × 0.63}/{1-[2,600/(10,000+4,510) x 0.63]} = 12.83 percent |
62.
|   Major Manuscripts, Inc. is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 6 percent?
Projected total assets = $20,640 × 1.06 = $21,878
Projected accounts payable = $3,350 × 1.06 = $3,551 Current long-term debt = $2,780 Current common stock = $10,000 Projected retained earnings = $4,510 + [($2,600 - $950) × 1.06] = $6,259 Additional debt required = $21,878 - $3,551 - $2,780 - $10,000 - $6,259 = -$712 |
63.
|   Major Manuscripts, Inc. is currently operating at 82 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 15 percent?
Projected current assets = $9,240 × 1.15 = $10,626
Projected capacity level = 0.82 × 1.15 = 0.943 (Will not exceed excess capacity.) Projected fixed assets = $11,400 Projected accounts payable = $3,350 × 1.15 = $3,852.50 Current long-term debt = $2,780 Current common stock = $10,000 Projected retained earnings = $4,510 + [($2,600 - $950) × 1.15] = $6,407.5 Additional debt required = $10,626 + $11,400 - $3,852.5 - $2,780 - $10,000 - $6,407.5 = -$1,014 |
64.
|   Assume the profit margin and the payout ratio of Major Manuscripts, Inc. are constant. If sales increase by 9 percent, what is the pro forma retained earnings?
Pro forma retained earnings = $4,510 + [($2,600 - $950) × 1.09)] = $6,308.50
|
65.
|   Assume that Major Manuscripts, Inc. is currently operating at 97 percent of capacity and that sales are projected to increase to $20,000. What is the projected addition to fixed assets?
Current maximum capacity = $17,100/.97 = $17,628.87
Required addition to fixed assets = [($11,400/$17,628.87) × $20,000] - $11,400 = $1,533 |
66.
|   All of Fake Stone's costs and net working capital vary directly with sales. Sales are projected to increase by 3.5 percent. What is the pro forma accounts receivable balance for next year?
Pro forma accounts receivable = $1,720 × (1 + .035) = $1,780.20
|
67.
|   The profit margin, the debt-equity ratio, and the dividend payout ratio for Fake Stone, Inc. are constant. Sales are expected to increase by $1,062 next year. What is the projected addition to retained earnings for next year?
Projected change in retained earnings = [($23,600 + $1,062)/$23,600] × ($3,420 - $1,368) = $2,144.34
|
68.
|   Assume that Fake Stone, Inc. is operating at full capacity. Also assume that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma net fixed asset value for next year if sales are projected to increase by 7.5 percent?
Pro forma net fixed assets = $19,600 × (1 + 0.075) = $21,070
|
69.
|   Assume that Fake Stone, Inc. is operating at 88 percent of capacity. All costs and net working capital vary directly with sales. What is the amount of the pro forma net fixed assets for next year if sales are projected to increase by 13 percent?
Pro forma capacity level = 0.88 × (1 + 0.13) = 99.44 percent.
No additional fixed assets are required. Thus, fixed assets will remain at $19,600. |
70.
|   Assume that Fake Stone, Inc. is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. What is the external financing need if sales increase by 12 percent?
External financing needed = (1.12 × $25,460) - (1.12 × $2,470) - $8,800 - $10,000 - $4,190 - [$3,420 - $1,368 × 1.12] = $460.56
|
71.
|   Fake Stone, Inc. is projecting sales to decrease by 4 percent next year while the profit margin remains constant. The firm wants to increase the dividend payout ratio by 2 percent. What is the projected increase in retained earnings for next year?
Projected dividend payout ratio = ($1,368/$3,420) = 40% + 2% = 42%
Retention ratio = 1 - 0.42 = 0.58 Projected increase in retained earnings = $3,420 × (1 - 0.04) × 0.58 = $1,904.26 |
72.
|   What is the internal growth rate of Fake Stone, Inc. assuming the payout ratio remains constant?
Internal growth = [($3,420/$25,460) × 0.6]/{1 - [($1,368/$3,420) × 0.6]} = 8.77 percent
|
73.
|   What are the pro forma retained earnings for next year if Fake Stone, Inc. grows at a rate of 2.5 percent and both the profit margin and the dividend payout ratio remain constant?
Pro forma retained earnings = $4,190 + [($3,420 - $1,368) × 1.025)] = $6,293.30
|
74.
|   Assume that net working capital and all of the costs of Fake Stone, Inc. increase directly with sales. Also assume that the tax rate and the dividend payout ratio are constant. The firm is currently operating at full capacity. What is the external financing need if sales increase by 4 percent?
Projected total assets = $25,460 × 1.04 = $26,478.40
Projected accounts payable = $2,470 × 1.04 = $2,568.80 Projected retained earnings = $4,190 + [($3,420 - $1,368) × 1.04] = $6,324.08 External financing need = $26,478.40 - $2,568.80 - $8,800 - $10,000 - $6,324.08 = -$1,214.48 |
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