Reference no: EM132797070
The Roeder Company has the following balance sheet and summarized income statement as of December 31, 201x (in millions of $):
Cash $ 10 Accounts Payable $ 40
Receivables 85 Notes Payable 10
Inventory 100 Accrued wages and taxes 25
Current Assets $195 Current Liabilities $ 75
Net Fixed Assets 150 Mortgage Bonds 72
Common Stock 150
Retained Earnings 48
Total Assets $345 Total Claims $345
Sales $500
Net Income 20
Dividends Paid 8
Roeder's anticipates that sales will increase to $750 million next year.
-Rework Roeder's AFN assuming that dividends are $10 million (In all of the following questions, always go back to the original information. Do not use your latest change). What conclusion can we make about the relationship between dividend payout and AFN, all other factors held constant? Explain why this relationship exists.
-Rework Roeder's AFN assuming that the net income is $50 million (keep dividend payout ratio at its original level). What conclusion can we make about the relationship between profit margin and AFN, all other factors held constant? Explain why this relationship exists.
-Rework Roeder's AFN assuming that the firm has more than enough excess capacity to meet its projected sales growth. In other words, assume that no new fixed assets are needed. What conclusion can we make about the relationship between excess capacity and AFN, all other factors held constant? Explain why this relationship exists.