Long Term Financial Planning Problems

Long Term Financial Planning Problems

Q1. The 2017 financial statements for Growth Industries are presented below.

finance assignment help

Sales and costs are projected to grow at 30% a year for at least the next 4 years. Both current assets and accounts payable are projected to rise in proportion to sales. The firm is currently operating at 75% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.40.

What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)

External Financing -$51,500

Q2. Plank’s Plants had net income of $6,000 on sales of $90,000 last year. The firm paid a dividend of $2,100. Total assets were $500,000, of which $350,000 was financed by debt.

a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Sustainable Growth Rate 2.6%

b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.)

New Debt $9100

c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Maximum Growth Rate 0.8%

Q3. An all-equity-financed firm plans to grow at an annual rate of at least 12%. Its return on equity is 20%. What is the maximum possible dividend payout rate the firm can maintain without resorting to additional equity issues? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Maximum Dividend Payout Ratio 40.0%