### What happens to afn and fcf

Assignment Help Accounting Basics
##### Reference no: EM131524705

Question: Start with the partial model in the file IFM9 Ch09 P10 Build a Model.xls from the ThomsonNOW Web site. Cumberland Industries' financial planners must forecast the company's financial results for the coming year. The forecast will be based on the percent of sales method, and any additional funds needed will be obtained by using a mix of notes payable, long-term debt, and common stock. No preferred stock will be issued. Data for the problem, including Cumberland Industries' balance sheet and income statement, can be found in the spreadsheet problem for Chapter 7. Use these data to answer the following questions.

a. Cumberland Industries has had the following sales since 2001. Assuming the historical trend continues, what will sales be in 2007?

Base your forecast on a spreadsheet regression analysis of the 2001-2006 sales. By what percentage are sales predicted to increase in 2007 over 2006? Is the sales growth rate increasing or decreasing?

b. Cumberland's management believes that the firm will actually experience a 20 percent increase in sales during 2007. Construct the 2007 pro forma financial statements. Cumberland will not issue any new stock or long-term bonds. Assume Cumberland will carry forward its current amounts of shortterm investments and notes payable, prior to calculating AFN. Assume that any additional funds needed (AFN) will be raised as notes payable (if AFN is negative, Cumberland will purchase additional short-term investments). Use an interest rate of 9 percent for short-term debt (and for the interest income on short-term investments) and a rate of 11 percent for long-term debt. No interest is earned on cash. Use the beginning of year debt balances to calculate net interest expense. Assume dividends grow at an 8 percent rate.

c. Now create a graph that shows the sensitivity of AFN to the sales growth rate. To make this graph, compare the AFN at sales growth rates of 5, 10, 15, 20, 25, and 30 percent.

d. Calculate net operating working capital (NOWC), total operating capital, NOPAT, and operating cash flow (OCF) for 2006 and 2007. Also, calculate the free cash flow (FCF) for 2007.

e. Suppose Cumberland can reduce its inventory to sales ratio to 5 percent and its cost to sales ratio to 83 percent. What happens to AFN and FCF?

### Write a Review

#### Brewer company is considering purchasing a machine that

brewer company is considering purchasing a machine that would cost 464610 and have a useful life of 7 years. the

#### Which is not usually a factor in your decision

When making a short term investment decision which of the following is not usually a factor in your decision?

#### Recording the leased asset

The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lease. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8..

#### Difference between white collar crime and street crime

What is the major difference between white collar crime and street crime?

#### Expensing start-up costs

Recently, a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese.

#### A year later mr wong if of the opinion that it is time for

a year later mr wong if of the opinion that it is time for him to further expand his business. due fast changing in the

#### Township inc has 10000 shares of 5 100 par value

township inc. has 10000 shares of 5 100 par value noncumulative preferred stock and 100000 shares of 1 par value common

#### Decision-making models

In this task, you are asked to conduct a small number of simulation trials. This task should be completed with manual calculations. Please be aware that the simulation results of such a small number of trials would not be sufficient for one to dra..

#### Assignment on ethics and auditing

Using the online library resources and the Internet, find an article about the unethical behavior of an auditor and its impact on the company.

#### Utilise specific, relevant and clearly explained frameworks

Some of the business practices portrayed in the film Inside Job would be criticised by both John Rawls and Robert Nozick. Identify and describe some of these problematic practices in Inside Job and then.

#### When the cost method is used to account for an investment

when the cost method is used to account for an investment the carring value of the investment is affected bya the

#### Compute the ammount of gross profit to be recognized from

on june 1 2013 the lutmann and dowd company sold inventory to the ushman corporation for 400000. terms of the sale