Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 1QP
Pro Forma Statements [LO1] Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
![Chapter 4, Problem 1QP, Pro Forma Statements [LO1] Consider the following simplified financial statements for the Yoo](http://dev-ingestion-image-output.s3-website-us-east-1.amazonaws.com/9780077861704/Chapter-4/images/61704-4-1qp-question-digital_image_001.png)
The company has predicted a sales increase of 15 percent. It has predicted that every item on the
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You've collected the following information about Groot, Inc.:
Profit margin
Total asset turnover
Total debt ratio
Payout ratio
= 4.44%
= 3.50
= .25
=
29%
a. What is the sustainable growth rate for the company? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. What is the ROA? (Do not round intermediate calculations and enter your answer as
a percent rounded to 2 decimal places, e.g., 32.16.)
a. Sustainable growth rate
b. ROA
%
15.54 %
Give typing answer with explanation and conclusion
27. EFN Define the following:
S = Previous year’s sales
A = Total assets
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
Assuming that all debt is constant, show that EFN can be written as
EFN = −PM(S)b + [A − PM(S)b] × g
Hint: Asset needs will equal A × g. The addition to retained earnings will equal PM(S)b × (1 + g).
For the companies Lockheed-Martin (LMT) & Northrop-Grumman (NOC)
•
•
•
[5 pts] Use Macrotrends data to calculate Return on Sales, Return on Assets, Debt
Ratio, Inventory Turnover, Lead Time for each company
[4 pts] Use Fintel to determine EPS forecasts for 2024-2027 for each company, and use
those to calculate an average earnings growth rate for each
-
https://fintel.io/sfo/us/Imt
https://fintel.io/sfo/us/noc
[4 pts] Assuming MARR = WACC + 3%, calculate a fair market price for the stock of
each company, assuming that earnings grow at the calculated rate for the next 50
years, with the following WACC
LMT:
NOC:
8.00%
8.25%
[2 pts] Find the current stock price for each company
[5 pts) Based on the above calculations, which company's stock would you buy, and
provide your reasoning (If neither or both, explain reasoning)
Chapter 4 Solutions
Fundamentals of Corporate Finance
Ch. 4.1 - What are the two dimensions of the financial...Ch. 4.1 - Prob. 4.1BCQCh. 4.2 - Prob. 4.2ACQCh. 4.2 - Prob. 4.2BCQCh. 4.3 - Prob. 4.3ACQCh. 4.3 - Prob. 4.3BCQCh. 4.4 - How is a firms sustainable growth related to its...Ch. 4.4 - What are the determinants of growth?Ch. 4.5 - What are some important elements that are often...Ch. 4.5 - Why do we say planning is an iterative process?
Ch. 4 - Prob. 4.1CTFCh. 4 - Prob. 4.2CTFCh. 4 - A firm has current sales of 272,600 with total...Ch. 4 - Prob. 4.4CTFCh. 4 - What is generally considered when compiling a...Ch. 4 - Sales Forecast [LO1] Why do you think most...Ch. 4 - Sustainable Growth [LO3] In the chapter, we used...Ch. 4 - External Financing Needed [LO2] Testaburger, Inc.,...Ch. 4 - EFN and Growth Rates [LO2, 3] Broslofski Co....Ch. 4 - Prob. 5CRCTCh. 4 - Prob. 6CRCTCh. 4 - Prob. 7CRCTCh. 4 - Prob. 8CRCTCh. 4 - Cash Flow [LO4] Which was the biggest culprit...Ch. 4 - Prob. 10CRCTCh. 4 - Pro Forma Statements [LO1] Consider the following...Ch. 4 - Pro Forma Statements and EFN [LO1, 2] In the...Ch. 4 - Prob. 3QPCh. 4 - EFN [LO2] The most recent financial statements for...Ch. 4 - EFN [LO2] The most recent financial statements for...Ch. 4 - Calculating Internal Growth [LO3] The most recent...Ch. 4 - Calculating Sustainable Growth [LO3] For the...Ch. 4 - Sales and Growth [LO2] The most recent financial...Ch. 4 - Calculating Retained Earnings from Pro Forma...Ch. 4 - Prob. 10QPCh. 4 - EFN and Sales [LO2] From the previous two...Ch. 4 - Internal Growth [LO3] If Stone Sour Co. has an ROA...Ch. 4 - Sustainable Growth [LO3] If Gold Corp. has an ROE...Ch. 4 - Sustainable Growth [L03] Based on the following...Ch. 4 - Sustainable Growth [LO3] Assuming the following...Ch. 4 - Full-Capacity Sales [LO1] Southern Mfg., Inc., is...Ch. 4 - Fixed Assets and Capacity Usage [LO1] For the...Ch. 4 - Growth and Profit Margin [LO3] Dante Co. wishes to...Ch. 4 - Growth and Assets [LO3] A firm wishes to maintain...Ch. 4 - Sustainable Growth [LO3] Based on the following...Ch. 4 - Sustainable Growth and Outside Financing [LO3]...Ch. 4 - Sustainable Growth Rate [LO3] Gilmore, Inc., had...Ch. 4 - Internal Growth Rates [LO3] Calculate the internal...Ch. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Calculating EFN [LO2] In Problem 24, suppose the...Ch. 4 - EFN and Internal Growth [LO2, 3] Redo Problem 24...Ch. 4 - EFN and Sustainable Growth [LO2, 3] Redo Problem...Ch. 4 - Constraints on Growth [LO3] Volbeat, Inc., wishes...Ch. 4 - EFN [LO2] Define the following:...Ch. 4 - Growth Rates [LO3] Based on the result in Problem...Ch. 4 - Sustainable Growth Rate [LO3] In the chapter, we...Ch. 4 - Calculate the internal growth rate and sustainable...Ch. 4 - SS Air is planning for a growth rate of 12 percent...Ch. 4 - Prob. 3M
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