Chapter 3: Answers to the end of the Chapter Problems

3-6. NI

$450,000

NCF = $650,000

3-7a. NI = $ 900,000
NCF = $ 2,400,000
b. NI = 0
NCF = $3,000,000
c. NI = $1,350,000
NCF = $2,100,000
d. higher depreciation

3-8 a. NOPAT = $90,000,000

b.

NOWC03 = $210,000,000

NOWC04 = $192,000,000
c. Operating capital03 = $460,000,000
Operating capital04= $492,000,000
d. FCF = $58,000,000

Chapter 13: Answers to the end of the Chapter Problems

13-7. Sales = $2,592,000
DSO = 36.33 days
13-8. TIE = 3.86.

13-9

a. (Dollar amounts in thousands.)

Industry
Average

Firm

Current assets
Current liabilitie s
DSO =

Accounts receivable
Sales/ 365

Sales
Inventory
Sales
Fixed assets
Sales
Total assets
Net income
Sales

ROE = 7.6%.
For the industry, ROE = 9%.

2.0

= 76 days 35 days

= 6.66

= 5.50

6.7

12.1

= 1.70

3.0

= 1.7%

1.2%

Net income
Total assets

= 2.9%

3.6%

Net income
Common equity

= 7.6%

9.0%

Total debt
Total assets
b. For the firm,

= 1.98

= 61.9% 60.0%

13-10 1. Debt = $150,000.

2. Accounts payable = $90,000
3. Common stock = $52,500.
4. Sales = $450,000.
5. Inventory = $90,000.
6. Accounts receivable = $45,000.
7.

Cash = $27,000.

8. Fixed assets = $138,000.

9. Cost of goods sold = $337,500.
13-11 a. Here are the firms base case ratios and other data as compared to the industry:

Quick
Current
Inventory turnover
Days sales outstanding
Fixed assets turnover
Total assets turnover
Return on assets
Return on equity
Debt ratio
Profit margin on sales
EPS
Stock Price
P/E ratio
P/CF ratio
M/B ratio

Firm
0.8
2.3
4.8
37 days
10.0
2.3
5.9%
13.1
54.8
2.5
$4.71
$23.57
5.0
2.0
0.65

Industry
1.0
2.7
7.0
32 days
13.0
2.6
9.1%
18.2
50.0
3.5
n.a.
n.a.
6.0
3.5
n.a.

Comment

Chapter 14: Answers to the end of the Chapter Problems

14-1

AFN = $410,000

14-2

AFN = $610,000

14-3

AFN = $200,000

14-4 Sales can increase by $68,965.52 without additional funds being needed.
14-5

a.

AFN = $13.44 million

b.

Upton Computers
Pro Forma Balance Sheet
December 31, 2005
(Millions of Dollars)

Cash
Receivables
Inventories
Total current
assets
Net fixed assets
Total assets
Accounts payable
Notes payable
Accruals

2004
$ 3.5
26.0
58.0

Forecast
Pro Forma
Basis %
after
2005 Sales Additions Pro Forma Financing Financing
0.0100
$ 4.20
$ 4.20
0.0743
31.20
31.20
0.1660
69.60
69.60

$ 87.5
35.0
$122.5

0.100

$ 9.0
18.0
8.5

0.0257
0.0243

Total current
liabilities
$ 35.5
Mortgage loan
6.0
Common stock
15.0
Retained earnings
66.0
Total liab.
and equity
$122.5
14-6

a.

7.56

$105.00
42.00
$147.00

$105.00
42.00
$147.00

$ 10.80
18.00
10.20

$ 10.80
31.44
10.20

+13.44

$ 39.00
6.00
15.00
73.56

$ 52.44
6.00
15.00
73.56

$133.56

$147.00

Stevens Textiles
Pro Forma Income Statement
December 31, 2005
(Thousands of Dollars)

Sales
Operating costs
EBIT
Interest
EBT
Taxes (40%)
Net income

2004
$36,000
$32,440
$ 3,560
460
$ 3,100
1,240
$ 1,860

Dividends (45%)
Addition to RE

$ 837
$ 1,023

Forecast
Basis
1.15 Sales04
0.9011 Sales05
0.10 Debt04

Pro Forma
2005
$41,400
37,306
$ 4,094
560
$ 3,534
1,414
$ 2,120
$ 954
$ 1,166

Stevens Textiles
Pro Forma Balance Sheet
December 31, 2005
(Thousands of Dollars)

Cash
Accts receivable
Inventories
Total curr.
assets
Fixed assets
Total assets
Accounts payable
Accruals
Notes payable
Total current
liabilities
Long-term debt
Total debt
Common stock
Retained earnings
Total liabilities
and equity

14-7

Forecast
Basis %
2004 2005 Sales Additions
$ 1,0800
0.0300
6,480
0.1883
9,000
0.2005

Pro Forma
after
Pro Forma Financing Financing
$ 1,242
$ 1,242
7,452
7,452
10,350
10,350

$16,560
12,600
$29,160

$19,044
14,490
$33,534

$19,044
14,490
$33,534

$ 4,968
3,312
2,100

$ 4,968
3,312
4,228

$ 4,320
2,880
2,100

0.3500
0.1200
0.0800

$ 9,300
3,500
$12,800
3,500
12,860

1,166

$29,160

a. & b.

+2,128

$10,380
3,500
$13,880
3,500
14,026

$12,508
3,500
$16,008
3,500
14,026

$31,406

$33,534

Garlington Technologies Inc.

Pro Forma Income Statement
December 31, 2005

Sales
Operating costs
EBIT
Interest
EBT
Taxes (40%)
Net income

2004
$3,600,000
3,279,720
$ 320,280
18,280
$ 302,000
120,800
$ 181,200

Dividends:
Addition to RE:

$ 108,000
$ 73,200

Forecast
Basis
1.10 Sales04
0.911 Sales05

Additions

2005
$3,960,000
3,607,692

$ 352,308
0.13 Debt04

20,280
$ 332,028
132,811
$ 199,217

Set by management

$ 112,000
$ 87,217

Garlington Technologies Inc.

Pro Forma Balance Statement
December 31, 2005

Cash
Receivables
Inventories
Total current
assets
Fixed assets
Total assets

2004
$ 180,000
360,000
720,000
$1,260,000
1,440,000
$2,700,000

Accounts payable $ 360,000

Notes payable
156,000
Accruals
180,000
Total current
liabilities
$ 696,000
Common stock
1,800,000
Retained earnings
204,000
Total liab.
and equity
$2,700,000

14-8

a. Total debt = $480,000

b. AFN = $18,750
14-9 AFN = $ 360.00

Forecast
Basis %
2005 Sales
0.05
0.10
0.20

Additions

0.40
0.10
0.05

87,217

2005
$ 198,000
396,000
792,000

AFN
Effects

With AFN
2005
$ 198,000
396,000
792,000

$1,386,000
1,584,000
$2,970,000

$1,386,000
1,584,000
$2,970,000

$ 396,000
156,000 +128,783
198,000

$ 396,000
284,783
198,000

$ 750,000
1,800,000
291,217

$ 878,783
1,800,000
291,217

$2,841,217

$2,970,000