gb550 unit six asgn

Topics: Finance, Generally Accepted Accounting Principles, Liability Pages: 2 (287 words) Published: October 16, 2014

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%
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