gb550 unit six asgn
Unit 6 Assignment
GB550 Financial Management
Kaplan University
4/29/2014
Chapter 12 question 12-1, p. 514
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5million at the end of 2013. Broussard it’s already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, 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 forecasted 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.
Sales 2013 = $9.2million
After tax profit margin (9,200,000 * 6%) = $552,000
Dividend payments ($552,000 *40%) = $220,800
Addition retained earnings ($552,000-$220,800) = $331,200
Assets must grow at the same rate as projected sales
Increase in assets = $5,000,000 * 15% = $750,000
Increase in liabilities = ($450,000+$450,000)*15% = $135,000
AFN = Increase in assets – increase in liabilities – addition to retained earnings
= $750,000 - $135,000 - $331,200
=$283,800
Answer: $283,800
Chapter 15 problem 15-3, p. 621
Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. if the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk?
If the company had no debt, its required return would be:
Required return without debt rs,U = rRF + bU RPM =
= 5.5% + 1.0(6%) = 11.5%
Required return with debt= rs,L = rRF + bL RPM =
=5.5% + 1.6*6%
= 15.1%
Premium extra required for financial risk is:
=15.1% - 11.5%
=3.6%
Answer = 3.6%
GB550 Financial Management
Kaplan University
4/29/2014
Chapter 12 question 12-1, p. 514
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5million at the end of 2013. Broussard it’s already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, 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 forecasted 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.
Sales 2013 = $9.2million
After tax profit margin (9,200,000 * 6%) = $552,000
Dividend payments ($552,000 *40%) = $220,800
Addition retained earnings ($552,000-$220,800) = $331,200
Assets must grow at the same rate as projected sales
Increase in assets = $5,000,000 * 15% = $750,000
Increase in liabilities = ($450,000+$450,000)*15% = $135,000
AFN = Increase in assets – increase in liabilities – addition to retained earnings
= $750,000 - $135,000 - $331,200
=$283,800
Answer: $283,800
Chapter 15 problem 15-3, p. 621
Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. if the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk?
If the company had no debt, its required return would be:
Required return without debt rs,U = rRF + bU RPM =
= 5.5% + 1.0(6%) = 11.5%
Required return with debt= rs,L = rRF + bL RPM =
=5.5% + 1.6*6%
= 15.1%
Premium extra required for financial risk is:
=15.1% - 11.5%
=3.6%
Answer = 3.6%