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Self- Test Problem (ST.1) Weatherford Industries Inc. has the following ratios A*/S0 = 0.4 ; Profit margin =0.10 ; and dividend payout ratio =0.45 or 45 percent . Sales last AFN formula to determine the maximum growth rate Weatherford can achieve without having to employ nonspontaneous external fund . (ST.2) Suppose Wearthford's financial consultants report (1) that the inverntory turnOver ratio is sales / ivverntory = 3 times versus and industry average of 4 times and without affecting sales ; the profit margin ; or the otherasset turnover ratios . Under these conditions . use the AFN formula to determine the amount of additional funds wearthford would require during each of the next 2 year if sales grew at a rate of 20 percent per year . (ST.3) Van Auken Lumber's 2004financial statemnts are shown below . Van Auken Lumber's : Balance Sheet as Decemver 31,2004 ( Thousand of Dollars) Cash 1.800$ Receivables 10.800 Inventories 12.600 Total current assets 25.200$ Net fixed assets 21.600 2.000 26.608 Total assets



Account payable Notes payable Accruals Total current liabilities Mortgage bonds



7.200$ 3.472 2.520 13.192$ 5.000



Common stock Retained earnings $46.800 Total liabilities and equity



$46.800



Van Auken Lumber : Income statement for December 31,2004 ( Thousand of Dollars) Sales $36.000 Operating costs 30.783 Earning before interest and taxes $5.217 Interest 1.017 Earning before taxes $4.200 Taxes(40%) 1.680 Net income $2.520 Dividends (60%) $1.512 Addition to retained earnings $1.008 a. Assume that the company was operating at full capacity in 2004 with regard to all items except fixed assets in 2004 were being utilized to only 75 percent of capacity By what percentage could 2005 sales increase over 2004 sales without the need for an in fixed assets? b. Now suppose 2005 sales increase by 25 percent over 2004 sales.how much additional external capital will be required ? Assume that van Aan Auken cannot forma balance sheet and income statement as in Tables 14-2 and14-3 Percent interest rate for all debt at the beginning of the year to forecast inter-



Est expens (cash does not earn interest),and use a pro froma income state_ Ment to determine the addition to retained earnings.(Another hint :Notes payable=$6,021.) PROBLEMS Carter corporations sales are expected to incredse from $5 million in 2004 to $6 million in 2005 , or by 20 percent. Its assets totaled $3 million at the end of 2004. carter is at full capacity