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(Defining capital structure weights

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(Defining capital structure weights)  In August of 2009 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) appeared as follows:

(Thousands of dollars) Book ValuesMarket Values
Short-term debt  $1,172,000  1,172,000
Long-term debt   11,917,000   11,917,000
Common equity 9,163,00026,241,000
Total capital$22,252,000$39,330,000

What weights should Emerson use when computing the firm’s weighted average cost of capital?

The appropriate weight of debt,

 
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(Financial forecasting)

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​​(Financial forecasting)  The balance sheet of the Thompson Trucking Company​ (TTC) follows:  

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TTC had sales for the year ended​ 12/31/13 of $49.2449.24 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends. ​ Thus, TTC generates no funds from its earnings that can be used to expand its operations. ​ (Assume that depreciation expense is just equal to the cost of replacing​ worn-out assets.).​ Hint: Make sure to round all intermediate calculations to at least five decimal places.

a.  If TTC anticipates sales of $79.6779.67 million during the coming​ year, develop a pro forma balance sheet for the firm for​ 12/31/14. Assume that current assets vary as a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.

b.  How much​ “new” financing will TTC need next​ year?

c.  What limitation does the​ percent-of-sales forecast method suffer​ from? Discuss briefly.

a.  If TTC anticipates sales of $79.6779.67 million during the coming​ year, develop a pro forma balance sheet for the firm for​ 12/31/14. Assume that current assets vary as a percent of​ sales, net fixed assets remain​ unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.  ​(Round to the nearest​ dollar.)

Thompson Trucking Company Balance​ Sheet, December​ 31, 2013​ ($ millions)

Current assets

​$9.939.93

Accounts payable

​$4.914.91

Net fixed assets

14.7114.71

Notes payable

0.000.00

Total

​$24.6424.64

Bonds payable

9.679.67

Common equity

10.0610.06

Total

​$24.6424.64

 
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(Financial forecasting)

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(Financial forecasting)  The balance sheet of the Thompson Trucking Company (TTC) follows:  

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TTC had sales for the year ended 12/31/13 of $49.2449.24 million. The firm follows a policy of paying all net earnings out to its common stockholders in cash dividends. Thus, TTC generates no funds from its earnings that can be used to expand its operations. (Assume that depreciation expense is just equal to the cost of replacing worn-out assets.). Hint: Make sure to round all intermediate calculations to at least five decimal places.

a.  If TTC anticipates sales of $79.6779.67 million during the coming year, develop a pro forma balance sheet for the firm for 12/31/14. Assume that current assets vary as a percent of sales, net fixed assets remain unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.

b.  How much “new” financing will TTC need next year?

c.  What limitation does the percent-of-sales forecast method suffer from? Discuss briefly.

a.  If TTC anticipates sales of $79.6779.67 million during the coming year, develop a pro forma balance sheet for the firm for 12/31/14. Assume that current assets vary as a percent of sales, net fixed assets remain unchanged, and accounts payable vary as a percent of sales. Use notes payable as a balancing entry.  (Round to the nearest dollar.)

 
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(Financial forecasting)

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​(Financial forecasting)  Zapatera Enterprises is evaluating its financing requirements for the coming year. The firm has only been in business for one​ year, but its CFO predicts that the​ firm’s operating​ expenses, current​ assets, net fixed​ assets, and current liabilities will remain at their current proportion of sales. Last year Zapatera had $12.4712.47 million in sales with net income of

​$1.221.22 million. The firm anticipates that next​ year’s sales will reach $15.7215.72 million with net income rising to $2.142.14 million. Given its present high rate of​ growth, the firm retains all of its earnings to help defray the cost of new investments. The​ firm’s balance sheet for the year just ended is as​ follows:  

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Estimate​ Zapatera’s total financing requirements​ (total assets) and its net funding requirements​ (discretionary financing​ needed) for 2014.  

Note​:

Use the percentage of sales given in Zapatera​ Enterprises’ balance sheet for 2013.

​

Zapatera​ Enterprises, Inc.  
Balance Sheet ​12/31/13 ​% of Sales
Current assets 2,600,000 20.850%
Net fixed assets 5,500,000 44.106%
Total 8,100,000
Liabilities and​ Owners’ Equity
Accounts payable 2,900,000 23.256%
​Long-term debt 1,600,000 NAa
Total liabilities 4,500,000
Common stock 1,000,000 NAa
​Paid-in capital 1,900,000 NAa
Retained earnings 700,000
Common equity 3,600,000
Total 8,100,000
NAa. This figure does not vary directly with sales and is assumed to remain constant for purposes of forecasting next​ year’s financing requirements.
 
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