FIN 300 Lecture 3: Chapter 4
31 Oct 2016
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Investment in new assets capital budgeting decisions: degree of financial leverage capital structure decisions, liquidity requirements net working capital decisions, cash paid to shareholders dividend policy decision. Inputs: current financial statements, forecast of key variables (e. g. sales growth, interest rates, etc. ) Model: percentage of sales method + modifications. Outputs: pro-forma financial statements, projected cash flow statement, key financial ratios, asset and financial requirements. Sales forecast: growth in unit sales, changes in price per unit. How to estimate sales growth: historical growth rates (e. g. average growth rate, economic analysis (e. g. relate to gdp growth, interest rates, employment rates, etc. ) Industry analysis (e. g. firm and competitor analysis, new product development, advertising and credit policy, production capacity) Initial assumptions: revenues grow at 15% (2000 x 1. 15, all items are tied directly to sales and the current relationships and optimal, consequently, all other items will also grow at 15%
