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Exbihit 4 data

A0* = Assets at 1998. All assets were needed for 1998 sales
S0 = 1998 Sales
1998 Net Income
1998 Dividends
L0* = 1998 payables + accruals, which increase spontaneously with sales
Part II. Data Used in the AFN Equation: 1998 Ratios Held Constant
AFN = Additional Funds Needed to buy assets needed to support growth. AFN is in
addition to funds raised internally, i.e., AFN represents required external funds.
g = Target growth rate in sales.

S1 = 1998 Sales = (1+g)(S0) = (1.1)($3,000)


S = Growth in sales = S1 - S0 = $3,300 - $3,000. Can also be found as S = g(S0)
L0*/S0 = Spontaneously generated funds per dollar of new sales. When multiplied by
S, we find the new payables and accruals that are available to support growth.
M = Profit margin on sales = 1997 net income/S 0 = $117.5/$3,000. Multiply by S1 (not
S0) to find the net income available in 1998 for dividends or growth.
RR = Retention Rate = (1 Dividend Payout Ratio) = (1 Dividends/Net Income) =
Part III. The AFN Equation
Required increase
in assets

(A0*/S0)S

0.6667($300)

$281

AFN =

AFN =

$200 million

Spontaneous
increase in
Payables and
Accruals
(L0*/S0)S
0.0667($300)
$28

Funds obtained as new


Retained Earnings. Based on
2009 Sales
MS1(RR)
0.0392($3,300)(0.5106)
$53

1998
$1,875
$4,800
$95.0
$0.0
$47

Base Case: 1998


Data
8.79%

0.6667
$5,222
$422

0.0667

0.0198

0.5106

Funds obtained as new


Retained Earnings. Based on
2009 Sales
MS1(RR)
0.0392($3,300)(0.5106)
$53

Exhibit 4 data for 1998 and exhbit 3 for 1997

Part I. Inputs
Growth rate, g
Operating costs / Sales
Receivables/Sales
Inventories/Sales
Debt ratio
Payout ratio

Adjustable Inputs:
1997
1998
NA
10%
90.54%
90.54%
12.50%
12.50%
20.50%
20.50%
53.0%
53.0%
48.94%
48.94%

Part II. Income Statements


Sales
Operating costs (includes depreciation)
Earnings Before Interest and Taxes (EBIT)
Less interest expense
Earnings Before Taxes (EBT)
Taxes
Net income (NI)
Dividends
Addition to retained earnings

Part III. Balance Sheets


Assets
Cash
Accounts receivable
Inventories
Fixed Assets (grow with sales)
Total Assets

1998
Industry
Fixed Inputs:
NA
Tax rate (T)
40%
87.00%
Interest rate
10.00%
9.86% Shares out'ing
50
9.17% Price per share
$23.06
40.0%
FA/Sales
7.60%
45.0%
1997(exhibit 3)
$4,412,191.0
171,187.0
$4,241,004.0
56,259.0
$4,184,745.0
18,036.0
$4,166,709.0
$0.0
$4,166,709.0
2008
$51,248.0
$623,362.0
$826,228.0
$365,180.0
$1,866,018.0

Change
(1+ g)
0.905
See notes
EBT(T)
NI(Payout)

Change
(1+ g)
0.1250
0.2050
(1+ g)

1998(exhibit 4)
$4,800,000.0
$1,344,000.0
$3,456,000.0
74,000.0
$3,382,000.0
61,000.0
$3,321,000.0
$0.0
$3,321,000.0
1998
$50,000.0
$620,000.0
$826,000.0
$365,000.0
$1,861,000.0

Liabilities and Equity


Payables + Accruals (both grow with sales)
Short term bank loans
Total current liabilities.
Long term bonds
Total debt
Common stock
Retained earnings
Total common equity
Total Liabilities and Equity

$394,457.0
(1+ g)
$0.0
See notes
$394,457.0
$176,522.0
See notes
$570,979.0
$103,250.0
See notes
$892,396.0 $3,321,000.0
$995,646.0
$1,566,625.0

$544,000.0
$0.0
$544,000.0
$189,000.0
$733,000.0
$401,000.0
$4,213,396.0
$4,614,396.0
$5,347,396.0

Part IV. Ratios and EPS


Operating costs/Sales
Receivables/Sales
Inventory/Sales
Debt ratio
Payout ratio
Total assets turnover
Assets/Equity (equity multiplier)
Times interest earned (TIE)
Profit margin
Return on assets (ROA)
Return on equity (ROE)
DuPont Calculations

1997
3.88%
14.13%
18.73%
30.60%
0.00%
2.36
1.87
75.38
94.44%
223.29%
418.49%
Profit
Margin
(NI/S)

1998E
28.00%
12.92%
17.21%
39.39%
0.00%
2.58
0.40
46.70
69.19%
178.45%
71.97%
Total Assets
Turnover
(S/A)

Equity
Multiplier
(Assets/
Equity)
1.87
0.40
1.67
$256.21

Actual 1997
94.44%
2.36
Forecasted for 1998
69.19%
2.58
Industry average data
5.00%
1.80
Earnings per share (EPS)
$83,334.18
Part V. Notes on Calculations
Assets in 1998 will change to this amount, from the balance sheet
Target debt ratio
Resulting total debt: (Target ratio)( 1998 Assets)
Less: Payables and accruals
Bank loans and bonds (= Interest-bearing debt)
Allocated to bank loans, based on 1997 proportions
Allocated to bonds, based on 1997 proportions
Interest expense: (Interest rate)(1998 bank loans plus bonds)
Target equity ratio = 1 Target debt ratio
Required total equity: (1998 Assets)(Target equity ratio)
Retained earnings, from 1998 balance sheet
Required common stock = Required equity Retained earnings
Old shares outstanding (millions)
Increase in common equity = 1998 Equity 1997 Equity
Initial price per share from input section
Change in shares = Change in equity/Initial price per share
New shares outstanding = Old shares + Shares
Old EPS = 1997 Net income / Old shares outstanding
New EPS = 1998 Net income / New shares outstanding

Industry
87.00%
9.86%
9.17%
40.00%
45.00%
1.80
1.67
6.00
5.00%
9.00%
15.00%
= ROE
418.5%
72.0%
15.0%

0.00%
100.00%

$1,861,000.0
53%
$986,330.0
-$544,000.0
$442,330.0
$0.0
$442,330.0
$44,233.0
47%
$874,670.0
$4,213,396.0
-$3,338,726.0
50
$297,750.0
$23.06
12,911.97
12,961.97
$83,334.18
$256.21