Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 16, Problem 2P
AFN EQUATION Refer to problem 16-1. What additional funds would be needed if the company’s year-end 2016 assets had been $4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in problem 16-1? Is the company’s “capital intensity” the same or different? Explain.
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Question 3: Study the following financial statements.
What was NOWC for 2017 and 2018? Show the calculation and circle your answer. Assume that all
cash is excess cash; i.e., this cash is not needed for operating purposes.
Calculate the Free Cash Flow in 2018. Show the calculation and circle your answer.
What was 2018 EVA? Show the calculation and circle your answer. Assume that its after-tax cost of
capital is 10%.
What was MVA at the year-end 2018? Show the calculation and circle your answer. (Note: Share
Price is $25)
Which of the following would be most likely be
included as part of free cash flows?
The lost revenue that could have been used if a
warehouse was leased out
The cost of an already completed marketing study
The interest that will be paid to debt holders to
finance the project
The salary paid to the firm's CEO
To
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“By applying capital to investments with long-term benefits, the company is attempting to produce value. This value is dependent on expected future cash flows as well as on the cost of funds.”
1. Explain this statement with regards to the role of cost of capital in financial management decisions.
Chapter 16 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Ch. 16 - Prob. 1QCh. 16 - Assume that an average firm in the office supply...Ch. 16 - Would you agree that computerized corporate...Ch. 16 - Certain liability and net worth items generally...Ch. 16 - Suppose a firm makes the following policy changes....Ch. 16 - AFN EQUATION Carlsbad Corporations sales are...Ch. 16 - AFN EQUATION Refer to problem 16-1. What...Ch. 16 - AFN EQUATION Refer to problem 16-1 and assume that...Ch. 16 - PRO FORMA INCOME STATEMENT Austin Grocers recently...Ch. 16 - EXCESS CAPACITY Williamson Industries has 7...
Ch. 16 - REGRESSION AND INVENTORIES jasper Furnishings has...Ch. 16 - PRO FORMA INCOME STATEMENT At the end of last...Ch. 16 - LONG-TERM FINANCING NEEDED At year-end 2016, total...Ch. 16 - SALES INCREASE Paladin Furnishings generated 4...Ch. 16 - REGRESSION AND RECEIVABLES Edwards Industries has...Ch. 16 - REGRESSION AND INVENTORIES Charlies Cycles Inc....Ch. 16 - EXCESS CAPACITY Earleton Manufacturing Company has...Ch. 16 - ADDITIONAL FUNDS NEEDED Morrissey Technologies...Ch. 16 - EXCESS CAPACITY Krogh Lumbers 2016 financial...Ch. 16 - INTEGRATED CASE NEW WORLD CHEMICALS INC. FINANCIAL...Ch. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - Forecast Earnings Growth Have analysts made any...Ch. 16 - Prob. 4DQCh. 16 - How has Abercrombies stock performed this year...
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- AFN EQUATION Refer to Problem 16-1. What additional funds would be needed if the companys year-end 2019 assets had been 4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in Problem 16-1? Is the companys capital intensity the same or different? Explain.arrow_forwardAFN Equation Refer to Problem 9-1. What would be the additional funds needed if the companys year-end 2018 assets had been 7 million? Assume that all other numbers, including sales, are the same as in Problem 9-1 and that the company is operating at full capacity. Why is this AFN different from the one you found in Problem 9-1? Is the companys capital intensity ratio the same or different?arrow_forwardAFN EQUATION Refer to problem 17-1. What additional funds would be needed if the company's year-end 2018 assets had been 4 million? Assume that all other numbers are the same. Why is this AFN different from the one you found in problem 17-1? Is the company's "capital intensity" the same or different? Explain.arrow_forward
- AFN Equation Refer to Problem 9-1. Return to the assumption that the company had 5 million in assets at the end of 2018, but now assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Why is this AFN different from the one you found in Problem 9-1?arrow_forward1. Using PROBLEM 1, how much is the projected net income for 2022? 2. Using PROBLEM 1, how much is the projected net cash flows from operating activities for 2026 must be? 3. Using PROBLEM 1, how much is the INTRINSIC Value of ABC Corporation? 4. Using PROBLEM 1, how much is the total present value of Free Cash Flows to ordinary shareholders of ABC Corporation? 5. Using PROBLEM 1, If your required return on investment is 12%, would you purchase the shares of ABC Corporation? Substantiate your answer. YES NOarrow_forward(Related to Checkpoint 4.2) (Capital structure analysis) The liabilities and owners' equity for Campbell Industries is found here: a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for $1.2 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? a. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is 27.21 %. (Round to one decimal place.) Data table Accounts payable Notes payable Current liabilities Long-term debt Common equity $514,000 $255,000 $769,000 $1,294,000 $5,326,000 $7,389,000 Total liabilities and equity Click on the icon in order to copy its contents into a spreadsheet.) Xarrow_forward
- Efficiency Does CEB manage efficiently its working capital (current assets and current liabilities)? (Justify using cash conversion cycle). When comparing the two companies, which between the two is more efficient?arrow_forwardMa3. Assume that Nike decides to build a new warehouse complex at significant cost, financed with additional project-specific long-term debt. Describe how this project and financing will impact Nike’s financial statements. In your response, focus on the impact on the ratios gross margin, profit margin, ROA, current ratio, and debt-to-equity Second, assume that management is wondering whether to capitalize the interest associated with the warehouse project’s financing. Describe how the financial statements will be impacted by the choice to capitalize interest or not. Also describe managements’ incentives to capitalize interest (or not to capitalize).arrow_forwardQ) For a given company studies indicate that due to the nature of contract business, any excess funds generated are expected to earn at a rate of 11% per year. Use the ROIC method to determine the rate of return on invested capital value for the given cash flow series.(X0=$2,000, X1=$-900, X2=$-7,000, X3=$6,900) Explain it early but not in excel works. Typed or handwriting onlysarrow_forward
- 1. Define and identify the components of:a. Operating cycleb. Cash conversion cycle2. What is the impact of longer cash conversion cycles on a firm’s working capital needs?3. Explain the profitability-risk trade-off of alternative levels of working capital balances.4. Explain the profitability-risk trade-off of alternative methods of financing a given working capital investment.5. Why does the typical firm need to make investments in working capital?6. Discuss the profitability versus risk trade-offs associated with alternative levels of working capital investment.7. A. which of the following working capital financing policies subjects the firm to a greater risk?i. Financing permanent current assets with short-term debtii. Financing fluctuating current assets with long-term debt B. Which policy will produce the higher expected profitability?arrow_forwardIf Corporation A operates at full capacity and Corporate B operates at less than full capacity which will have a higher additional funds needed if all else is the same and why? What is the capital intensity ratio? What makes a capital intensity ratio higher, why higher capital lead to higher AFN?arrow_forward(Ignore income taxes in this problem.) Your Company is considering an investment that has the following data: Year 1 2 3. 4. Investment $20,000 Cash inflow $2,000 $2,000 $5,000 $4,000 $60,000 In what year does the payback period for this investment occur? O Year 2. O Year 3. Year 4. Year 5.arrow_forward
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