(12-1)Baxter Video Produc

(12-1)Baxter Video Produc

(12-1)Baxter Video Products?s sales are expected to increase by 20% from $5 million in2010 to $6 million in 2011. Its assets totaled $3 million at the end of 2010. Baxteris already at full capacity, so its assets must grow at the same rate as projected sales.At the end of 2010, current liabilities were $1 million, consisting of $250,000 ofaccounts payable, $500,000 of notes payable, and $250,000 of accruals. The aftertaxprofit margin is forecasted to be 5%, and the forecasted payout ratio is 70%.Use the AFN equation to forecast Baxter?s additional funds needed for thecoming year.(12?2)Refer to Problem 12-1. What would be the additional funds needed if the company?syear-end 2010 assets had been $4 million? Assume that all other numbers, includingsales, are the same as in Problem 12-1 and that the company is operating at full capacity.Why is this AFN different from the one you found in Problem 12-1? Is thecompany?s ?capital intensity? ratio the same or different?(12?3)Refer to Problem 12-1. Return to the assumption that the company had $3 million inassets at the end of 2010, but now assume that the company pays no dividends. Underthese assumptions, what would be the additional funds needed for the comingyear? Why is this AFN different from the one you found in Problem 12-1?

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