1. The Podrasky Corporation is considering an $80 million expansion (capital exp

Question

1. The Podrasky Corporation is considering an $80 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Next year the company expects to earn $55 million after interest and taxes. The company also plans to increase its dividends from $10 million to $15 million. If the expansion program is accepted, the company expects its current assets needs to increase by approximately $25 million next year. Long-term debt retirement obligations total $2 million next year and depreciation is expected to be $20 million. No fixed assets are expected to be sold next year.

a. $28 million

b. $33 million

c. $47 million

d. $38 million

    a. $28.125 million
     b. $18.125 million
     c. $16.375 million
     d. $8.375 million

      a. Yes, the holding period return is 33.33% greater than 30%.
      b. No, the holding period return is 25.64% less than 30%.
      c. No, the holding period return is 23.08% less than 30%.
      d. No, the holding period return is 15.38% less than 30%.

a.       If you

2. TTT Inc has current sales of $40 million. Sales are expected to grow to $65 million next year. TTT currently has accounts receivable of $25 million, inventories of $10 million, and the net fixed assets of $30 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $15 million to a new level of $22 million next year. TTT wants to increase its cash balance at the end of next year by $5 million. Earnings after taxes next year are forecasted to be $12 million. Next year, TTT plans to pay dividends of $1.5 million. How much external financing is required by TTT next year?

Explanation / Answer

1. The Podrasky Corporation is considering an $80 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Next year the company expects to earn $55 million after interest and taxes. The company also plans to increase its dividends from $10 million to $15 million. If the expansion program is accepted, the company expects its current assets needs to increase by approximately $25 million next year. Long-term debt retirement obligations total $2 million next year and depreciation is expected to be $20 million. No fixed assets are expected to be sold next year.

c. $47 million

    a. $28.125 million
   

      a. Yes, the holding period return is 33.33% greater than 30%.
   

   
     d. An exchange rate quoted as USD 0.99 per Japanese Yen in Japan is known as an indirect quote.

2. TTT Inc has current sales of $40 million. Sales are expected to grow to $65 million next year. TTT currently has accounts receivable of $25 million, inventories of $10 million, and the net fixed assets of $30 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $15 million to a new level of $22 million next year. TTT wants to increase its cash balance at the end of next year by $5 million. Earnings after taxes next year are forecasted to be $12 million. Next year, TTT plans to pay dividends of $1.5 million. How much external financing is required by TTT next year?

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