12-1 AFN Equation
(All $ in one million million millions)
Baxter Video Productss sales be expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets totaled sales growth rate20%
$3 million at the end of 2010. Baxter is already at full capacity, so its assets moldiness grow at the same rate as project sales. At the S0$5
end of 2010, current liabilities were $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and A0*/ S060.000%($3/$5)
$250,000 of accruals. The after- tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. Use the AFN L0*/ S010.000%($0.5/$5)
equation to forecast Baxters redundant funds needed for the coming year.Profit margin (M)5.000%
AFN = (A0*/S0)?S ?(L0*/S0)?S ?M(S1)(1?POR)Payout ratio70.000%
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? gross revenue$1.00
Problems (pp. 549-550)S1$6.00
13-2 Value of Operations of Constant Growth FirmAFN$0.41
EMC confederation has never paid a dividend. Its current free money flow of $400,000 is expected to grow at a changeless rate of 5%.
The heavy average cost of with child(p) is WACC = 12%. Calculate EMCs value of operations
[FCF * (1+g)] / [ WACC - g] = $400,000*1.5%/12%-5%= $6,000,000
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13-3 Horizon Value
accredited and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after
2012, and the weighted average cost of capi- tal is 11%. What is the horizon (continuing) value at 2012?
Actual Projected
……………….……………………2010 …………2011………………..2012…………………..2013
Free cash flow $606.82 667.50 707.55 750.00
(millions of dollars)
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