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    Tough:: Maximum Growth Rate Answer: B Diff: T

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    Kaye Javellana
    The document discusses two word problems related to corporate finance. The first asks to calculate the maximum growth rate a company can sustain without requiring additional funds based on given financial ratios and sales data. The second asks to calculate a company's current ratio after a 30% sales growth if it raises necessary expansion funds using the AFN formula to estimate fund requirements.

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    Tough:: Maximum Growth Rate Answer: B Diff: T

    Uploaded by

    Kaye Javellana
    69 views1 page
    The document discusses two word problems related to corporate finance. The first asks to calculate the maximum growth rate a company can sustain without requiring additional funds based on given financial ratios and sales data. The second asks to calculate a company's current ratio after a 30% sales growth if it raises necessary expansion funds using the AFN formula to estimate fund requirements.

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    FMTB-16

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    The document discusses two word problems related to corporate finance. The first asks to calculate the maximum growth rate a company can sustain without requiring additional funds based on given financial ratios and sales data. The second asks to calculate a company's current ratio after a 30% sales growth if it raises necessary expansion funds using the AFN formula to estimate fund requirements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    69 views1 page

    Tough:: Maximum Growth Rate Answer: B Diff: T

    Uploaded by

    Kaye Javellana
    The document discusses two word problems related to corporate finance. The first asks to calculate the maximum growth rate a company can sustain without requiring additional funds based on given financial ratios and sales data. The second asks to calculate a company's current ratio after a 30% sales growth if it raises necessary expansion funds using the AFN formula to estimate fund requirements.

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    © All Rights Reserved
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    of 1

    Tough:

    Maximum growth rate Answer: b Diff: T


    38. The Tapley Company is trying to determine an acceptable growth rate in
    sales. While the firm wants to expand, it does not want to use any
    external funds to support such expansion due to the particularly high
    interest rates in the market now. Having gathered the following data for
    the firm, what is the maximum growth rate it can sustain without requiring
    additional funds?

     Capital intensity ratio = 1.2.


     Profit margin = 10%.
     Dividend payout ratio = 50%.
     Current sales = $100,000.
     Spontaneous liabilities = $10,000.

    a. 3.6%
    b. 4.8%
    c. 5.2%
    d. 6.1%
    e. 5.7%

    AFN formula method Answer: b Diff: T


    39. Volunteer Retailers has the following balance sheet:

    Current assets $ 600,000,000 Accounts payable $ 200,000,000


    Fixed assets 900,000,000 Accrued liabilities 200,000,000
    Long-term debt 600,000,000
    Common stock 100,000,000
    Retained earnings 400,000,000
    Total liabilities
    Total assets $1,500,000,000 and equity $1,500,000,000

    Volunteer’s profit margin is 5 percent, and it pays out 40 percent of its


    earnings as dividends. Its sales last year were $6,000,000,000; its assets
    were used to full capacity; no economies of scale exist in the use of
    assets; and its profit margin and payout ratio are expected to remain
    constant. Thus, both current assets and fixed assets are expected to grow
    at the same rate as sales. The company uses the AFN formula to estimate
    funds requirements, and it plans to raise any required external capital as
    short-term bank loans, which will be included as part of current
    liabilities. If sales grow by 30 percent, what will Volunteer’s current
    ratio be after it has raised the necessary expansion funds? (Note: Ignore
    any financing feedback effects.)
    a. 1.12
    b. 1.27
    c. 1.21
    d. 1.57
    e. 1.16

    Chapter 17 - Page 16

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