KhoaNguyen GB550 Unit 6 Assignment 1 
Unit 6 Assignment
Chapter 12 question, 12-1, p. 514 Chapter 15 problem, 15-3, p. 621
Tiaira Walls
Ch. 12: page 514 number 12-1
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2013 to $9.2 million 2014. Its assets totaled $5 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were 1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.
AFN = $238,800
Sales expected in 2013 =$9,200,000
After-tax profit margin ($9,200,000*6%) =$552,000
Dividend payments [$552,000*40%] =$220,800
Addition to retained earnings [$552,000 - $220,800] =$331,200
Increase in assets = $5,000,000*15%
$750,000
Increase in liabilities = [$450,000+$450,000]*15%
$135,000
AFN = Increase in assets Increase in liabilities Addition to retained earnings
$750,000 - $135,000 - $331,200
$283,800
Chapter 15 problem, 15-3, p. 621
Ethier Enterprise has an unleveled beta of 1.0. Ethier is financed with 50% debt and has levered beta of 1.6 If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk.
rs = rRF + b(RPM) rs = 5.5% + 1.0(6%) rs = 5.5% + 6% = 11.5%
Levered rs = 5.5% + 1.6(6%) rs = 5.5% + 9.6% rs = 15.1%
15.1% - 11.5% = 3.6%
Chapter 12 question, 12-1, p. 514 Chapter 15 problem, 15-3, p. 621
Tiaira Walls
Ch. 12: page 514 number 12-1
Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2013 to $9.2 million 2014. Its assets totaled $5 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2013, current liabilities were 1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.
AFN = $238,800
Sales expected in 2013 =$9,200,000
After-tax profit margin ($9,200,000*6%) =$552,000
Dividend payments [$552,000*40%] =$220,800
Addition to retained earnings [$552,000 - $220,800] =$331,200
Increase in assets = $5,000,000*15%
$750,000
Increase in liabilities = [$450,000+$450,000]*15%
$135,000
AFN = Increase in assets Increase in liabilities Addition to retained earnings
$750,000 - $135,000 - $331,200
$283,800
Chapter 15 problem, 15-3, p. 621
Ethier Enterprise has an unleveled beta of 1.0. Ethier is financed with 50% debt and has levered beta of 1.6 If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk.
rs = rRF + b(RPM) rs = 5.5% + 1.0(6%) rs = 5.5% + 6% = 11.5%
Levered rs = 5.5% + 1.6(6%) rs = 5.5% + 9.6% rs = 15.1%
15.1% - 11.5% = 3.6%