Exam 12: Forecasting

Chang & Wu Inc.is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed The firm is operating at full capacity.Data for use in your forecast are shown below.Based on the AFN equation, what is the AFN for the coming year? Last year's sales =\ 0 \ 200,000 Last year's accounts payable \ 50,000 Sales growth rate =g 40\% Last year's notes payable \ 15,000 Last year's total assets =A*0 \1 35,000 Last year's accruals \2 0,000 Last year's profit margin=M 20.0\% Target payout ratio *25.0\%

rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset.

year Handorf-Zhu Inc.had $850 million of sales, and it had $425 million of fixed assets that were used at only 60% of capacity.What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Which of the following statements is CORRECT?

term "additional funds needed (AFN)" is generally defined as follows:

a firm's capital intensity ratio (A0*/S0) decreases as sales increase, use of the AFN formula is likely to understate the amount of additional funds required, other things held constant.

Operating plans sketch out broad approaches for realization of the firm's strategic vision.These plans usually are developed for a period no longer than a 1-year time horizon because detail is "lost" by extending out the time horizon by more than 1 year.

year Wei Guan Inc.had $350 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity.In millions, by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Errors in the sales forecast can be offset by similar errors in costs and income forecasts.Thus, as long as the errors are not large, sales forecast accuracy is not critical to the well-being of the firm.

year Emery Industries had $450 million of sales and $225 million of fixed assets, so its FA/Sales ratio was 50%.However, its fixed assets were used at only 65% of capacity.If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated?

a firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100%, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, it will require external financing.

firm's profit margin is 5%, its debt/assets ratio is 56%, and its dividend payout ratio is 40%.If the firm is operating at less than full capacity, then sales could increase to some extent without the need for external funds, but if it is operating at full capacity with respect to all assets, including fixed assets, then any positive growth in sales will require some external financing.

determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.

capital intensity ratio is generally defined as follows:

Which of the following statements is CORRECT?

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year.All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

firm's AFN must come from external sources.Typical sources include short-term bank loans, long-term bonds, preferred stock, and common stock.

a firm's sales grow, its current assets also tend to increase.For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable.Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases.