444 Words2 Pages

Chapter 12: Financial Planning and Forecasting Financial Statements
Problem 12-1: AFN Equation. Baxter Video Products’s sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxter is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of note payable, and $250,000 of accruals. The after tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Baxter’s additional funds needed for the coming year.
AFN = (Ao*/S0)∆S - (Lo*/S0)∆S - (M)(S1)(1 –POR) = $1,000,000 – $1,000,000 – 0.05($6,000,000)(1 – 0.7) = (0.6)($1,000,000) - (0.1)($1,000,000) - (0.05)($6,000,000)(0.3) = $600,000 - $100,000 - $90,000 = $410,000
Chapter 13: Corporate Valuation, Value-Based Management, and Corporate Governance
Problem 13-2: Value of Operations of Constant Growth Firm. EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. VOP = [FCF x (1+g)] / (WACC-g) = [$400,000 x (1+0.05)] / (0.12-0.05)
= [$400,000 x 1.05] / 0.07
= $420,000 / 0.07
= $6,000,000
Problem 13-3: Horizon Value. Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? Actual Projected 2010 2011 2012 2013
Free cash flow (millions of dollars) $606.82 $667.50 $707.55 $750.00
g = ($750.00 - $707.50) / $707.50 = $42.50 / $707.50 = 0.06 VOP = [(FCF x (1+g)] /

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