The Kretovich Company had a quick ratio of 1.4, a current ratio of 3.0, an inventory turnover of 6 times, total current assets of $810,000, and cash and marketable securities of $120,000. What were Kretovich?s annual sales and its DSO? Midwest Packaging?s ROE last year was only 3 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for a total debt ratio of 60 percent, which will result in interest charges of $300,000 per year. Management projects an EBIT of $1,000,000 on sales of $10,000,000, and it expects to have a total assets turnover ratio of 2.0. Under these conditions, the tax rate will be 34 percent. If the changes are made, what return on equity will the company earn? Assume than an average firm in the office supply business has a 6 percent after-tax profit margin, a 40 percent debt/assets ratio, a total assets turnover of 2 times, and a dividend payout ratio of 40 percent. Is it true that if such a firm is to have any sales growth (g > 0), it will be forced either to borrow or to sell common stock (that is, it will need some non-spontaneous, external capital even if g is very small? What would the additional funds needed be if the company?s year-end 2001 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 4-1? Is the company?s ?capital intensity? the same or different? Return to the assumption that the company had $3 million in assets at the end of 2001, 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 4-1?,Carter Corporation's sales are expected to increase from $5 million in 2001 to $6 million in 2002, or by 20 percent. Its assets totaled $3 million at the end of 2001. Carter is at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2001, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accruals. The after-tax profit margin is forecasted to be 5 percent, and the forecasted payout ratio is 70 percent. Use this information to answer problems 4-1, 4-2, and 4-3. Q 4-1: Use the AFN formula to forecast Carter's additional funds needed for the coming year.
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