17.1 What are the key factors on which external financing depends, as indicated in the AFN equation?
AFN = (A*/S₀)△S ﹣ (L*/S₀)△S ﹣ M(S₁)(RR)
A*
current assets tied directly to sales
S₀
sales
△S
growth (change) in sales
L*
spontaneous liabilities that increase w/ sales
M
profit margin on sales
S₁
next year’s forecasted sales
RR
retention ratio (1-payout)
17.4
a. Projected Net Income
Sales ($700) x (1.25)
$875.00
Operating Costs Incl. Depr. ($875) x (70%)
612.50
EBIT
$262.50
Interest
40.00
EBT
$222.50
Taxes (40%)
89.00
Net Income
$133.50
b. ($44.50-$32.00)/($32.00) = 39% Dividend growth rate
17.7
Sales
($3000) x (1.10) = $3300
$3300
Operating Costs Excluding Depreciation
($3300) x (0.80) = $2640
2640
EBITDA
$660
Depreciation
($250) x (1.10) = $275
275
EBIT
$385
Interest
125
EBT
$260
Taxes (40%)
($260) x (0.40) = $104
104
Net Income
$156
