Instant Download PDF Intermediate Financial Management 12th Edition Brigham Solutions Manual Full Chapter

Intermediate Financial Management
12th Edition Brigham Solutions Manual

Go to download the full and correct content document:
https://testbankfan.com/product/intermediate-financial-management-12th-edition-brig
ham-solutions-manual/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Intermediate Financial Management 12th Edition Brigham

Test Bank
https://testbankfan.com/product/intermediate-financial-
management-12th-edition-brigham-test-bank/

Solutions Manual
management-13th-edition-brigham-solutions-manual/

Solutions Manual

Test Bank
Test Bank

Test Bank
Fundamentals of Financial Management 12th Edition

Brigham Test Bank
https://testbankfan.com/product/fundamentals-of-financial-
Essentials of Financial Management 3rd Edition Brigham

Solutions Manual
https://testbankfan.com/product/essentials-of-financial-
management-3rd-edition-brigham-solutions-manual/
Fundamentals of Financial Management 15th Edition

Brigham Solutions Manual
https://testbankfan.com/product/fundamentals-of-financial-
Chapter 9
Corporate Valuation and Financial Planning
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
We like to use discussion questions along with relatively simple and easy to follow calculations
for our lectures. Unfortunately, forecasting is by its very nature relatively complex, and it simply
cannot be done in a realistic manner without using a spreadsheet. Accordingly, our primary
“question” for Chapter 9 is really a problem, but one that can be discussed. Therefore, we base
our lecture primarily on the BOC model and we use the class period to discuss forecasting and
Excel modeling. We cover the chapter in about 2 hours, and then our students work a case on
the subject later in the course.
9-1 The major components of the strategic plan include the firm’s purpose, the scope of its
operations, its specific (quantified) objectives, its operating strategies, its operating
plan, and its financial plan.
Engineers, economists, marketing experts, human resources people, and so on all
participate in strategic planning, and development of the plan is a primary function of the
senior executives. Regional and world economic conditions, technological changes,
competitors’ likely moves, supplies of resources, and the like must all be taken into
account, along with the firm’s own R&D activities.
The effects of all these forces, under alternative strategic plans, are analyzed by use of
forecasted financial statements. In essence, the financial statements are used to simulate
the company’s operations under different economic conditions and corporate strategic
plans.
Since the strategic plan is necessarily somewhat nebulous, it is sometimes neglected
in practice on the grounds that it is difficult to quantify. We can only note that if a
company doesn’t think about the direction in which its industry is going, it is likely to
end up in bankruptcy, as most bankruptcies occur because an inaccurate business plan.
9-2 a. The sales forecast is the primary driver of the financial plan. Forecasted sales
determine the amount of capacity needed, inventory and receivables levels, profits,
and capital requirements. If a company forecasts its sales incorrectly, this can be
disastrous, as Cisco and Lucent learned recently. We discuss sales forecasting in the
BOC model.
b. See the BOC model for a detailed explanation. Essentially, we take the prior year’s
financial statements and then change them to reflect (1) changes in sales and (2)
policies that will affect things like the amount of inventories carried to support a
given amount of sales.
Answers and Solutions: 9 - 1

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
c. See the BOC model for a detailed explanation. Essentially, we project the assets that
will be required to support the forecasted level of sales, and we also project the
amount of funds that will be available from retained income and spontaneous sources
of funds. The difference is the AFN.
Generally, faster growth would mean the requirement for more assets. That
would reduce FCF and thus increase AFN. Of course, if the firm were extremely
profitable, then faster growth might produce enough extra profits to support that
growth, but that would be unusual. In our illustrative case, the higher the growth rate,
the greater the AFN and the smaller the FCF. Note, though, that since sales are
profitable, the more the firm sells, the higher its profits. Therefore, the faster the
growth rate, the larger is EPS and ROE. This result is shown in the model.
d. See the BOC model for a detailed explanation. Given the projected financial
statements, we can calculate various ratios, EPS, and FCF and then compare the
projected values with historical data and industry benchmarks. Various policies can
be considered, and their effects as revealed by the computer model can be analyzed.
A set of feasible policies that will produce the desired results, or perhaps the best
attainable results, will be adopted. Of course, that’s the easy part. The hard part is
operating the business so that the projected results will be realized.
9-3 The performance of the firm could be compared with the industry average. Also, as
shown in the model, we could see how the firm’s ROE, EPS, etc. would look if it could
get its operating ratios to the same level as the industry average.
Industry average data is also useful when preparing a business plan for a new
business. We could forecast sales, then forecast the financial statements based on
industry average date. The capital requirements (the amount of required debt and equity)
could be determined, and then the new firm could seek to raise the required funds. Many
new businesses fail because they don’t raise enough funds at the outset and are forced out
of business when they run out of cash. Forecasting as done in the model could head off
such disasters.
9-4 Managers are obviously concerned about forecast errors. The effects of such errors can
be analyzed by use of scenario and sensitivity analysis. Both types of analysis are
illustrated in the BOC model.

9-5 Economies of scale refer to situations where unit costs decline as sales increase. Lumpy
assets are assets that must be added in very large units, often resulting in excess capacity
immediately after they go on line and before sales can grow into them. Excess capacity
simply means that the firm could produce more than it is currently producing, in which
case sales can expand with very little increase in capital.
If economies of scale exist, then profits should rise rapidly with sales, so management
should take steps to increase volume. If assets are lumpy, then management will
probably do things like go to second and third shifts to avoid increasing plant and
equipment, or working out arrangements with other firms to sell some capacity until it is
needed. If excess capacity exists, then the marginal cost per unit will be relatively low,
so sales promotions and the like might be used to increase sales. In all of these situations,
management must be concerned with the long-run effects of actions. For example, before
air conditioning was widely used, electric utilities had excess capacity in the summer.
Then they promoted air conditioning through advertising and low summer rates. Demand
increased so much that the peak load was shifted from winter (for heating) to summer.
This resulted in capacity shortages and forced companies to expand their generating
capacity.
9-6 The AFN equation is useful in a pedagogic sense to get an idea of how sales increases
lead to required asset increases, and hence to a need for new capital. The equation is not
used in practice today because spreadsheet models provide so much more information
and are relatively easy to construct.
AFN = (A*/S0)∆S - d(L*/S0)∆S - MS1(RR).
A* is assets that increase at the same rate as sales, L* is liabilities that increase
spontaneously at the same rate as sales, S0 is last year’s sales, S1 is forecasted sales for
the coming year, and ∆S is the forecasted increase in sales, M is the profit margin, and
RR is the percentage of earnings the firm retains.
The formula is simple and easy to use, but it assumes a constant relationship between
sales, assets, and liabilities, and a constant profit margin and retention ratio. As indicated
above, the formula is not used in practice because the financial statement approach is so
much better.
9-7 We could set the AFN equation up and use it to get an idea of the maximum sales growth
rate without external capital. However, we can use the model go get a better
approximation.

ANSWERS TO END-OF-CHAPTER QUESTIONS
9-1 a. The operating plan provides detailed implementation guidance designed to

accomplish corporate objectives. It details who is responsible for what particular
function, and when specific tasks are to be accomplished. The financial plan details
the financial aspects of the corporation’s operating plan.
b. Spontaneous liabilities are the first source of expansion capital as these accounts
increase automatically through normal business operations. Examples of spontaneous
liabilities include accounts payable, accrued wages, and accrued taxes. No interest is
normally paid on these spontaneous liabilities; however, their amounts are limited due
to credit terms, contracts with workers, and tax laws. Therefore, spontaneous
liabilities are used to the extent possible, but there is little flexibility in their usage.
Note that notes payable, although a current liability account, is not a spontaneous
liability since an increase in notes payable requires a specific action between the firm
and a creditor. A firm’s profit margin is calculated as net income divided by sales.
The higher a firm’s profit margin, the larger the firm’s net income available to
support increases in its assets. Consequently, the firm’s need for external financing
will be lower. A firm’s payout ratio is calculated as dividends per share divided by
earnings per share. The less of its income a company distributes as dividends, the
larger its addition to retained earnings. Therefore, the firm’s need for external
financing will be lower.

c. Additional funds needed (AFN) are those funds required from external sources to
increase the firm’s assets to support a sales increase. A sales increase will normally
require an increase in assets. However, some of this increase is usually offset by a
spontaneous increase in liabilities as well as by earnings retained in the firm. Those
funds that are required but not generated internally must be obtained from external
sources. Although most firms’ forecasts of capital requirements are made by
developing forecasted financial statements, the AFN formula is sometimes used as an
approximation of financial requirements. It is written as follows:
Additional Required Increase in Increase in

funds = asset – spontaneous – retained
needed increase liab. earnings
AFN = (A0*/S0)∆S – (L0*/S0)∆S – MS1(1 – Payout rate)
Capital intensity is the dollar amount of assets required to produce a dollar of sales.
The capital intensity ratio is the reciprocal of the total assets turnover ratio. It is
calculated as Assets/Sales. The sustainable growth rate is the maximum growth rate
the firm could achieve without having to raise any external capital. A firm’s self-
supporting growth rate can be calculated as follows:
M(1 − POR )(S 0 )

Self-supporting g =
A 0 * − L 0 * − M(1 − POR )(S 0 )
d. The forecasted financial statement approach using percent of sales develops a

complete set of financial statements that can be used to calculate projected EPS, free
cash flow, various other financial ratios, and a projected stock price. This approach
first forecasts sales, the required assets, the funds that will be spontaneously
generated, and then net income, dividends, and retained earnings.
e. A firm has excess capacity when its sales can grow before it must add fixed assets
such as plant and equipment. “Lumpy” assets are those assets that cannot be acquired
smoothly, but require large, discrete additions. For example, an electric utility that is
operating at full capacity cannot add a small amount of generating capacity, at least
not economically. When economies of scale occur, the ratios are likely to change
over time as the size of the firm increases. For example, retailers often need to
maintain base stocks of different inventory items, even if current sales are quite low.
As sales expand, inventories may then grow less rapidly than sales, so the ratio of
inventory to sales declines.

f. Full capacity sales are calculated as actual sales divided by the percentage of capacity
at which fixed assets were operated. The target fixed assets to sales ratio is calculated
as actual fixed assets divided by full capacity sales. The required level of sales is
calculated as the target fixed assets to sales ratio multiplied by the projected sales
level.
9-2 Accounts payable, accrued wages, and accrued taxes increase spontaneously. Retained
earnings may or may not increase, depending on profitability and dividend payout policy.
9-3 The equation gives good forecasts of financial requirements if the ratios A0*/S and L0*/S,
the profit margin, and payout ratio are stable. This equation assumes that ratios are
constant. This would not occur if there were economies of scale, excess capacity, or
when lumpy assets are required. Otherwise, the forecasted financial statement method
should be used.
9-4 The five key factors that impact a firm’s external financing requirements are: Sales
growth, capital intensity, spontaneous liabilities-to-sales ratio, profit margin, and payout
ratio.
9-5 The self-supporting growth rate is the maximum rate a firm can achieve without having
to raise external capital. The self-supporting growth rate is calculated using the AFN
equation, setting AFN equal to zero, replacing the term ΔS with the term g × S0, and
replacing the term S1 with S0 × (1 + g). Once the AFN equation is rewritten with these
modifications, you can now solve for g. This “g” obtained is the firm’s self-supporting
growth rate.
9-6 a. +.
b. +. It reduces spontaneous funds; however, it may eventually increase retained

earnings.
c. +.
d. +.
e. –.
f. –.

SOLUTIONS TO END-OF-CHAPTER PROBLEMS
9-1 AFN = (A0*/S0)∆S – (L0*/S0)∆S – (PM)(S1)(1 – payout rate)

 $5,000,000   $900,000 
=  $1,200,000 –   $1,200,000 – 0.06($9,200,000)(1 – 0.4)
 $8,000,000   $8,000,000 
= (0.625)($1,200,000) – (0.1125)($1,200,000) – ($552,000)(0.6)
= $750,000 – $135,000 – $331,200
= $283,800.
 $7,000,000   $900,000 
9-2 AFN =   $1,200,000 –   $1,200,000 – 0.06($9,200,000)(1 – 0.4)
 $8,000,000   $8,000,000 
= (0.875)($1,200,000) – $135,000 – $331,200
= $1,050,000 – $466,200
= $583,800.
The capital intensity ratio is measured as A0*/S0. This firm’s capital intensity ratio is
higher than that of the firm in Problem 9-1; therefore, this firm is more capital
intensive—it would require a large increase in total assets to support the increase in
sales.
9-3 AFN = (0.625)($1,200,000) – (0.1125)($1,200,000) – 0.06($9,200,000)(1 – 0)

= $750,000 – $135,000 – $552,000
= $63,000.
Under this scenario the company would have a higher level of retained earnings
which would reduce the amount of additional funds needed.

9-4 S0 = $5,000,000; A0* = $2,500,000; CL = $700,000; NP = $300,000; AP = $500,000;
Accruals = $200,000; M = 7%; payout ratio = 80%; A0*/S0 = 0.50; L0* = (AP +
Accruals)/S0 = ($500,000 + $200,000)/$5,000,000 = 0.14.
AFN = (A0*/S0)∆S – (L0*/S0)∆S – (M)(S1)(1 – payout rate)

= (0.50)∆S – (0.14) ∆S – (0.07)(S1)(1 – 0.8)
= (0.50)∆S – (0.14)∆S – (0.014)S1
= (0.36)∆S – (0.014)S1
= 0.36(S1 – S0) – (0.014)S1
= 0.36(S1 – $5,000,000) – (0.014)S1
= 0.36S1 – $1,800,000 – 0.014S1
$1,800,000 = 0.346S1
$5,202,312 = S1.
Sales can increase by $5,202,312 – $5,000,000 = $202,312 without additional funds

being needed.
9-5 a. Total liab. = Accounts + Long-term + Common + Retained

and equity payable debt stock earnings
$2,170,000 = $560,000 + Long-term debt + $625,000 + $395,000
Long-term debt = $590,000.
Total liab. = Accounts payable + Long-term debt

= $560,000 + $590,000 = $1,150,000.
b. Assets/Sales (A0*/S0) = $2,170,000/$3,500,000 = 62%.

L0*/Sales = $560,000/$3,500,000 = 16%.
2014 Sales = (1.35)($3,500,000) = $4,725,000.
AFN = (A0*/S0)(∆S) – (L0*/S0)(∆S) – (M)(S1)(1 – payout) – New common stock

= (0.62)($1,225,000) - (0.16)($1,225,000) - (0.05)($4,725,000)(0.55) - $195,000
= $759,500 - $196,000 - $129,937 - $195,000 = $238,563.
Alternatively, using the forecasted financial statement method:

Forecast Additions
basis is % (New
of 2015 Financing and
2015 Sales ΔRE) 2016
Sales $3.500,000 $4,725,000
Total assets $2,170,000 0.62 $2,929,500
Current liabilities $ 560,000 0.16 $ 756,000

Preliminary long-term debt 590,000 590,000
Total liabilities $1,150,000 $1,346,000
Common stock 625,000 195,000* 820,000
Retained earnings 395,000 129,937** 524,937
Total common equity $1,020,000 $1,344,937
Preliminary total liabilities and equity $2,170,000 $2,690,937
AFN = Total assets – Preliminary total liabilities & equity = S2,929,500 – 2,690,937 = $238,563
AFN = Additional required long-term debt =$238,563
*Given in problem that firm will sell new common stock = $195,000.
**PM = 5%; Payout = 45%; NI2014 = $3,500,000 x 1.35 x 0.05 = $236,250.
Addition to RE = NI x (1 - Payout) = $236,250 x 0.33 = $129,937.

9-6 Cash $ 100.00 × 2.0 = $ 200.00
Accounts receivable 200.00 × 2.0 = 400.00
Inventories 200.00 × 2.0 = 400.00
Net fixed assets* 500.00 × 1.0 = 500.00
Total assets $1,000.00 $1,500.00
Accounts payable $ 50.00 × 2 = $ 100.00

Accruals 50.00 × 2 = 100.00
Notes payable 150.00 + 0 = 150.00
Long-term debt 400.00 + 0 = 400.00
Common stock 100.00 + 0 = 100.00
Retained earnings** 250.00 + 40 = 290.00
Total liabilities
and equity $1,000.00 $1,140.00
AFN = $ 360.00
*Capacity sales = Sales/0.5 = $1,000/0.5 = $2,000 with respect to existing fixed assets.
Target FA/S ratio = $500/$2,000 = 0.25.
Target FA = 0.25($2,000) = $500 = Required FA. Since the firm currently has $500 of
fixed assets, no new fixed assets will be required.
**Addition to RE = (M)(S1)(1 – Payout ratio) = 0.05($2,000)(0.4) = $40.
9-7 a. AFN = (A0*/S0)(∆S) – (L0*/S0)(∆S) – (M)(S1)(1 – payout)

$122.5 $17.5 $10.5
= ($70) – ($70) – ($420)(0.6) = $13.44 million.
$350 $350 $350
M (1 − POR )(S0 )
b. Self-supporting g =
A 0 * − L 0 * − M (1 − POR )(S0 )
0.03(1 − 0.40)(350)
=
122.5 − 17.5 − .03(1 − .4)(350)
= 6.38%

c. Upton Computers
Pro Forma Balance Sheet
December 31, 2016
(Millions of Dollars)
Forecasted sales = $420 million

Profit margin = M = $10.5/$350 = 3%.
Payout ratio = $4.2/$10.5 = 40%.
NI = Forecasted sales × Profit margin = $350 × 1.2 × 0.03 = $12.6.
Dividends = NI(Payout ratio) = $12.6(40%) = $5.04.
Addition to RE = NI – DIV = $12.6 – $5.04 = $7.56.
Forecast
Basis:
Percent of 2016 Pro
forecasted 2016 Pro Forma after
2015 sales Additions Forma Financing Financing
Cash $ 3.5 0.0100 $ 4.20 $ 4.20
Receivables 26.0 0.0743 31.20 31.20
Inventories 58.0 0.1657 69.60 69.60
Total current assets $ 87.5 $105.00 $105.00
Net fixed assets 35.0 0.100 42.00 42.00
Total assets $122.5 $147.00 $147.00
Accounts payable $ 9.0 0.0257 $ 10.80 $ 10.80

Notes payable 18.0 18.00 18.00
Line of credit 0.0 0.00 +13.44 +13.44
Accruals 8.5 0.0243 10.20 10.20
Total current liabilities $ 35.5 $ 39.00 $ 52.44
Mortgage loan 6.0 6.00 6.00
Common stock 15.0 15.00 15.00
Retained earnings 66.0 7.56 73.56 73.56
Total liab. and equity $122.5 $133.56 $147.00
Deficit = $ 13.44

9-8 Stevens Textiles
Pro Forma Income Statement
December 31, 2016
(Thousands of Dollars)
a.
2016
Forecast 2016
2015 Basis Pro Forma
Sales $36,000 1.15 × Sales15 $41,400
Operating costs 32,440 0.9011 × Sales16 37,306
EBIT $ 3,560 $ 4,094
Interest 460 0.10 × Debt15 560
EBT $ 3,100 $ 3,534
Taxes (40%) 1,240 1,414
Net income $ 1,860 $ 2,120
Dividends (45%) $ 837 $ 954

Addition to RE $ 1,023 $ 1,166

Stevens Textiles
Pro Forma Balance Sheet
December 31, 2016
(Thousands of Dollars)
Forecast 2016 Pro
Basis % 2016 Pro 2016 Forma after
2015 2016 Sales Additions Forma Financing Financing
Cash $ 1,080 0.0300 $ 1,242 $ 1,242
Accts receivable 6,480 0.1800 7,452 7,452
Inventories 9,000 0.2500 10,350 10,350
Total curr. assets $16,560 $19,044 $19,044
Fixed assets 12,600 0.3500 14,490 14,490
Total assets $29,160 $33,534 $33,534
Accounts payable $ 4,320 0.1200 $ 4,968 $ 4,968

Accruals 2,880 0.0800 3,312 3,312
Line of credit 0 0 +2,128 +2,128
Notes payable 2,100 2,100 +2,128
Total curr. liabilities $ 9,300 $10,380 $12,508
Long-term debt 3,500 3,500 3,500
Total debt $12,800 $13,880 $16,008
Common stock 3,500 3,500 3,500
Retained earnings 12,860 1,166* 14,026 14,026
Total liab. and equity $29,160 $31,406 $33,534
Deficit = $ 2,128
*From income statement.
b. Line of credit = $2,128 (thousands of $).
c. If debt is added throughout the year rather than only at the end of the year, interest
expense will be higher than in the projections of part a. This would cause net income to
be lower, the addition to retained earnings to be higher, and the AFN to be higher. Thus,
you would have to add more than $2,128 in new debt. This is called the financing
feedback effect.

9-9 Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2016
Forecast Pro Forma

2015 Basis 2016
Sales $3,600,000 1.10 × Sales15 $3,960,000
Operating costs 3,279,720 0.911 × Sales16 3,607,692
EBIT $ 320,280 $ 352,308
Interest 18,280 0.13 × Debt15 20,280
EBT $ 302,000 $ 332,028
Taxes (40%) 120,800 132,811
Net income $ 181,200 $ 199,217
Dividends: $ 108,000 Set by management $ 112,000

Addition to RE: $ 73,200 $ 87,217
Garlington Technologies Inc.

Pro Forma Balance Statement
December 31, 2016
Forecast
Basis % AFN With AFN
2015 2016 Sales Additions 2016 Effects 2016
Cash $ 180,000 0.05 $ 198,000 $ 198,000
Receivables 360,000 0.10 396,000 396,000
Inventories 720,000 0.20 792,000 792,000
Total curr. assets $1,260,000 $1,386,000 $1,386,000
Fixed assets 1,440,000 0.40 1,584,000 1,584,000
Total assets $2,700,000 $2,970,000 $2,970,000
Accounts payable $ 360,000 0.10 $ 396,000 $ 396,000

Notes payable 156,000 156,000 156,000
Line of credit 0 0 +128,783 128,783
Accruals 180,000 0.05 198,000 198,000
Total curr. liabilities $ 696,000 $ 750,000 $ 878,783
Common stock 1,800,000 1,800,000 1,800,000
Retained earnings 204,000 87,217* 291,217 291,217
Total liab.
and equity $2,700,000 $2,841,217 $2,970,000
Deficit = $ 128,783
*See income statement.

SOLUTION TO SPREADSHEET PROBLEMS
9-10 The detailed solution is available in the file Ch09 P10 Build a Model Solution.xlsx at the
textbook’s Web site.
9-11 The detailed solution for is available in the file Ch09 P11 Build a Model Solution.xlsx at
the textbook’s Web site.

MINI CASE
Hatfield Medical Supplies’s stock price had been lagging its industry averages, so its
board of directors brought in a new CEO, Jaiden Lee. Lee had brought in Ashley Novak, a
finance MBA who had been working for a consulting company, to replace the old CFO, and
Lee asked Ashley to develop the financial planning section of the strategic plan. In her
previous job, Novak’s primary task had been to help clients develop financial forecasts, and
that was one reason Lee hired her.
Novak began as she always did, by comparing Hatfield’s financial ratios to the
industry averages. If any ratio was substandard, she discussed it with the responsible manager
to see what could be done to improve the situation. The following data shows Hatfield’s latest
financial statements plus some ratios and other data that Novak plans to use in her analysis.
Hatfield Medical Supplies (Millions of Dollars Except Per Share Data)

Balance Sheet, 12/31/2015 Income Statement, Year Ending 2015
Cash $ 20 Sales $2,000
Accts. rec. 280 Op. costs (excl. depr.) 1,800
Inventories 400 Depreciation 50
Total CA $ 700 EBIT $ 150
Net fixed assets 500 Interest 40
Total assets $1,200 Pretax earnings $ 110
Taxes (40%) 44
Accts. pay. & accruals $ 80 Net income $ 66
Line of credit $0
Total CL $ 80 Dividends $20.0
Long-term debt 500 Add. to RE $46.0
Total liabilities $ 580 Common shares 10.0
Common stock 420 EPS $6.60
Retained earnings 200 DPS $2.00
Total common equ. $620 Ending stock price $52.80
Total liab. & equity $1,200
Mini Case: 9 - 16
Selected Additional Data for 2015
Hatfield Industry Hatfield Industry
Op. costs/Sales 90.0% 88.0% Total liability/Total assets 48.3% 36.7%
Depr./FA 10.0% 12.0% Times interest earned 3.8 8.9
Cash/Sales 1.0% 1.0% Return on assets (ROA) 5.5% 10.2%
Receivables/Sales 14.0% 11.0% Profit margin (M) 3.30% 4.99%
Inventories/Sales 20.0% 15.0% Sales/Assets 1.67 2.04
Fixed assets/Sales 25.0% 22.0% Assets/Equity 1.94 1.56
Acc. pay. & accr. / Sales 4.0% 4.0% Return on equity (ROE) 10.6% 16.1%
Tax rate 40.0% 40.0% P/E ratio 8.0 16.0
ROIC 8.0% 12.5%
NOPAT/Sales 4.5% 5.6%
Total op. capital/Sales 56.0% 45.0%
Note: Hatfield was operating at full capacity in 2015. Also, you may observe small differences in items like the ROE
when calculated in different ways. Any such differences are due to rounding, and they can be ignored.
Mini Case: 9 - 17
a. Using Hatfield’s data and its industry averages, how well run would you say
Hatfield appears to be in comparison with other firms in its industry? What are its
primary strengths and weaknesses? Be specific in your answer, and point to various
ratios that support your position. Also, use the DuPont equation (see Chapter 7) as
one part of your analysis.
Answer: The DuPont equation shows the relationship among asset management, profitability
ratios, and leverage. By examining this equation we can determine where Hatfield falls
short of the industry.
ROEHatfield = Profit margin × Asset turnover × Equity multiplier

= 3.30% × 1.67 × 1.94
= 10.6%.
ROEIndustry = Profit margin × Asset turnover × Equity multiplier

= 4.99% × 2.04 × 1.56
= 16.1
From the DuPont equation, you can see that Hatfield’s profitability and asset
management ratios are lower than the industry average and its leverage is higher than the
industry average. The combined effect results in a much lower return on equity for the
firm relative to the industry average. If you study the asset management ratios in detail,
you will see that the firm’s receivables and industry turnovers are lower than the
industry average. Sales are too low for the current assets held, the firm may be holding
receivables that are uncollectible, or the firm may be holding inventory that is obsolete.
The firm’s debt ratio is higher than the industry average. A direct result of this is a
higher interest rate, which increases the firm’s interest expense. As a result, the firm’s
times interest earned ratio is lower than the industry average.
Mini Case: 9 - 18
b. Use the AFN equation to estimate Hatfield’s required new external capital for 2016
if the sales growth rate is 10%. Assume that the firm’s 2015 ratios will remain the
same in 2016. (Hint: Hatfield was operating at full capacity in 2015.)
Answer:
Data for AFN Equation

Growth rate in sales (g) 10%
Sales (S0) $2,000
Forecasted sales (S1) $2,200
Increase in sales (ΔS = gS0) $200
Profit margin (M) 3.30%
Assets (A0*) $1,200
Capital intensity ratio (A0*/S0) 60.0%
Payout ratio (POR) 30.3%
Spontaneous liabilities (L0*) $80
Spont. Liab./Sales (L0*/S0) 4.0%
Here is the AFN equation:
AFN = (A0*/S0)∆S – (L0*/S0)∆S – M(S1)(1 – Payout)

= (0.60)($200) – (0.04)($200) – (3.30)($2,200)(1−0.303)
= $120 – $8 – $50.6 = $61.4 million.
c. Define the term capital intensity. Explain how a decline in capital intensity would
affect the AFN, other things held constant. Would economies of scale combined
with rapid growth affect capital intensity, other things held constant? Also, explain
how changes in each of the following would affect AFN, holding other things
constant: the growth rate, the amount of accounts payable, the profit margin, and
the payout ratio.
Answer: The capital intensity ratio is the amount of assets required per dollar of sales, A0*/S0, and
it has a major effect on capital requirements. A decline in the capital intensity ratio
would lower the need for external capital as this would mean a smaller amount of assets
would be required per dollar of sales. Economies of scale combined with rapid growth
would mean that it is likely that the capital intensity ratio would change over time as the
size of the firm increased.
Mini Case: 9 - 19
Rapidly growing companies require large increases in assets and a corresponding
large amount of external financing, other things held constant. Accounts payable are
spontaneous liabilities that come about due to normal day-to-day business operations.
Firms don’t have a lot of control over the level of spontaneous liabilities as they’re a
function of industry norm and tax laws. The higher the firm’s level of accounts payable
(spontaneous liabilities) the smaller the amount of external financing, other things held
constant. The higher the profit margin, the larger the net income available to support
increases in assets, hence the less the need for external financing, other things held
constant. The less of its income a company distributes as dividends, the larger its
addition to retained earnings, hence the smaller the need for external capital—other
things held constant.
d. Define the term self-supporting growth rate. What is Hatfield’s self-supporting

growth rate? Would the self-supporting growth rate be affected by a change in the
capital intensity ratio or the other factors mentioned in the previous question?
Other things held constant, would the calculated capital intensity ratio change over
time if the company were growing and were also subject to economies of scale
and/or lumpy assets?
Answer: The self-supporting growth rate is the maximum growth rate the firm could achieve if it
had no access to external capital. From the data given, Hatfield’s self-supporting growth
rate is calculated as:
Self-supporting g = [M(1 – POR)(S0)]/[A0* – L0* – M(1 – POR)(S0)]
M= 3.30%
POR = 30.3%
1-POR = 69.7%
S0 = $2,000
A* = $1,200
L* = $80
Self-supporting g = [M(1 – POR)(S0)]/[A0* – L0* – M(1 – POR)(S0)]

= [(0.033)(0.697)($2,000)]/[$1,200 – $80 – 0.033(0.697)($2,000)]
= $46/$1,074
= 0.0428 = 4.28%.
Mini Case: 9 - 20
The higher the firm’s capital intensity ratio, the lower the firm’s self-supporting growth
rate because the firm would require more assets per dollar of sales. The higher the
firm’s profit margin and the lower its payout ratio, the higher the firm’s self-supporting
growth rate.
The calculated capital intensity ratio will change over time if the firm company is
expanding and if economies of scale and lumpy assets exist. When economies occur, the
capital intensity ratio will change over time as the size of the firm increases. In many
industries, technological considerations dictate that if a firm is to be competitive, it must
add fixed assets in large, discrete units. These assets are referred to as lumpy assets.
When this occurs the firm’s capital intensity ratio will change. So, at the point where the
assets must increase in a large amount, the capital intensity ratio will be high, so required
external financing will be high. As sales increase but assets don’t need to increase, the
capital intensity ratio will fall—until sales reach the point where large increases in assets
are required again.
e. Use the following assumptions to answer the questions below: (1) Operating ratios
remain unchanged. (2) Sales will grow by 10%, 8%, 5%, and 5% for the next four
years. (3) The target weighted average cost of capital (WACC) is 9%. This is the
No Change scenario because operations remain unchanged.
Actual Forecast
Inputs 2015 2016 2017 2018 2019
Sales growth rate: 10% 8% 5% 5%
Op. costs/Sales: 90% 90% 90% 90% 90%
Depr./FA 10% 10% 10% 10% 10%
Cash/Sales: 1% 1% 1% 1% 1%
Acct. rec. /Sales 14% 14% 14% 14% 14%
Inv./Sales: 20% 20% 20% 20% 20%
FA/Sales: 25% 25% 25% 25% 25%
AP & accr. / Sales: 4% 4% 4% 4% 4%
Tax rate: 40% 40% 40% 40% 40%
Rate on all debt 8.0% 8% 8% 8%
Div. growth rate: 5% 10% 10% 10% 10%
Target WACC 9%
Mini Case: 9 - 21
e. 1. For each of the next four years, forecast the following items: sales, cash, accounts
receivable, inventories, net fixed assets, accounts payable & accruals, operating
costs (excluding depreciation), depreciation, and earnings before interest and taxes
(EBIT).
Forecast sales as Salest = Salest-1(1+gt). For example, Sales2016 = $2,000(1+0.10) =

$2,200.
Forecast other items as a percent of sales (or as percent of fixed assets for
depreciation). For example, Inventories2016 = $2,200(0.20) = $44
Scenario: No Change Actual Forecast

2015 2016 2017 2018 2019
Net sales $2,000 $2,200 $2,376 $2,495 $2,620
Cash $20 $22 $24 $25 $26
Accounts receivable $280 $308 $333 $349 $367
Inventories $400 $440 $475 $499 $524
Net fixed assets $500 $550 $594 $624 $655
Accts. pay. & accruals $80 $88 $95 $100 $105
Op. costs (excl. depr.) $1,800 $1,980 $2,138 $2,245 $2,358
Depreciation $50 $55 $59 $62 $65
EBIT $150 $165 $178 $187 $196
e. 2. Using the previously forecasted items, calculate for each of the next four years the
net operating profit after taxes (NOPAT), net operating working capital, total
operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on
invested capital. What does the forecasted free cash flow in the first year imply
about the need for external financing? Compare the forecasted ROIC compare
with the WACC. What does this imply about how well the company is performing?
NOPAT = EBIT(1-T)
NOWC = (Cash + accounts receivable + inventories) − (Accounts payable & accruals)
Total operating capital = NOWC + Net fixed assets
FCF = NOPAT − Change in total operating capital
ROIC = NOPAT/Total operating capital
Mini Case: 9 - 22
Scenario: Actual Forecast
No Change 2015 2016 2017 2018 2019
NOPAT $90 $99 $107 $112 $118
NOWC $620 $682 $737 $773 $812
Total op. capital $1,120 $1,232 $1,331 $1,397 $1,467
FCF −$13 $8 $46 $48
Growth in FCF -164% 447.1% 5.0%
ROIC 8.0% 8.0% 8.0% 8.0% 8.0%
e. 3. Assume that FCF will continue to grow at the growth rate for the last year in the
forecast horizon (Hint: 5%). What is the horizon value at 2019? What is the present
value of the horizon value? What is the present value of the forecasted FCF? (Hint:
use the free cash flows for 2016 through 2019). What is the current value of
operations? Using information from the 2015 financial statements, what is the
current estimated intrinsic stock price?
With no rounding in intermediate steps, FCF2019 = $48.025.
FCF2019 (1 + g L ) $48.025(1 + 0.05)

HV2019 = = = $1,261
(WACC − g L ) (0.09 − 0.05)
Scenario:
No Change
Horizon Value: Value of operations $958
+ ST investments $0
9(1+gL )
HV2019 = = $1,261 Estimated total intrinsic value $958
(WACC − gL )
− All debt $500
Value of Operations: − Preferred stock $0
Present value of HV $893 Estimated intrinsic value of equity $458
+ Present value of FCF $64 ÷ Number of shares 10
Value of operations = $958 Estimated intrinsic stock price = $45.75
Mini Case: 9 - 23
The estimated intrinsic stock value of $45.75 is less than the actual market price of
$52.80. The market price indicates that the market expected the operating performance
to improve; if operating performance doesn’t improve, the market price is likely to drop.
But keep in mind that stocks prices are very volatile, so a difference of −13% =
$45.75/$52.80 – 1 is not very big.
f. Continue with the same assumptions for the No Change scenario from the previous
question, but now forecast the balance sheet and income statements for 2016 (but
not for the following three years) using the following preliminary financial policy.
(1) Regular dividends will grow by 10%. (2) No additional long-term debt or
common stock will be issued. (3) The interest rate on all debt is 8%. (4) Interest
expense for long-term debt is based on the average balance during the year. (5) If
the operating results and the preliminary financing plan cause a financing deficit,
eliminate the deficit by drawing on a line of credit. The line of credit would be
tapped on the last day of the year, so it would create no additional interest expenses
for that year. (6) If there is a financing surplus, eliminate it by paying a special
dividend. After forecasting the 2016 financial statements, answer the following
questions.
f. 1. How much will Hatfield need to draw on the line of credit?
Answer: Forecast sales and then items on the balance sheet. The forecast of sales is $2,200.
Forecast the operating items as a percent of sales. The preliminary financial policy
specifies no change in the long-term debt or common stock. Retained earnings increase
by the addition to retained earnings from the forecasted income statement. Leave the line
of credit blank for now.
Mini Case: 9 - 24
Assets 2015 Input Basis for 2016 Forecast 2016
Cash $20 1% × 2016 Sales $22
Accts. rec. $280 14% × 2016 Sales $308
Inventories $400 20% × 2016 Sales $440
Total CA $700 $770
Net fixed assets $500 25% × 2016 Sales $550
Total assets $1,200 $1,320
Liabilities and equity
Accts. pay. & accruals $80 4% × 2016 Sales $88
Line of credit $0 Add LOC if fin. deficit
Total CL $80 $88
Long-term debt $500 No Change $500
Total liabilities $580 $588
Common stock $420 No Change $420
Retained earnings $200 Old RE + Add. to RE $253
Total common equity $620 $673
Total liabs. & equity $1,200 $1,261
Check: TA − TL & Equ. $59
Forecast the items on the income statement. Costs are a percent of sales, depreciation is a
percent of Net PP&E. Forecast interest expense on the long-term debt as the product of
the interest rate and the average balance on the long-term debt (i.e., the average of the
beginning value and the ending value). Pay a regular dividend. Leave the special
dividend blank for now.
2015 Input Basis for 2016 Forecast 2016

$2,20
Sales $2,000 110% × 2015 Sales 0
$1,98
Op. costs (excl. depr.) $1,800 90% × 2016 Sales 0
Depreciation $50 10% × 2016 Net fixed assets $55
EBIT $150 $165
Less: Interest on LTD $40 8% × Avg bonds $40
Interest on LOC $0 8% × Beginning LOC $0
Pretax earnings $110 $125
Taxes (40%) $44 40% × Pretax earnings $50
Net income $66 $75
Regular common dividends $20 110% × 2015 Dividend $22
Special dividends $0 Pay if financing surplus
Addition to RE $46 Net income – Dividends $53
Mini Case: 9 - 25
The next step is to identify the financing surplus or deficit. Start with the additions to
operating assets, subtract the increase in spontaneous liabilities (accounts payable and
accruals), subtract any new external financing from long-term debt or common stock,
and subtract the amount of reinvested net income (the amount that is not paid out in
common dividends). The result is the financing deficit (if it is negative) or the financing
surplus (if it is positive). If there is a deficit, draw on the LOC. If there is a surplus, pay a
special dividend.
Increase in spontaneous liabilities (accounts payable and accruals) $8

+ Increase in long-term debt and common stock $0
+ Net income minus regular common dividends $53
Increase in financing $61
− Increase in total assets $120
Amount of deficit or surplus financing: −$59
If deficit in financing (negative), draw on line of credit $59
If surplus in financing (positive), pay special dividend $0
There is a deficit of $59, so update the balance sheets by adding $59 to the line of credit.
Because the LOC is added at the end of the year, there is no additional interest, so there
is no need to update the income statement. If the LOC were instead added earlier in the
year, there would be additional interest, which would cause lower net income, which
would cause a lower addition to retained earnings, which would cause a bigger financial
deficit. This is called financing feedback. See Ch09 Tool Kit.xls and look at the
worksheet CFO Model for a simple way to resolve financing feedback and for an
extension of the 1-year forecasted financial statements to multiple years.
Mini Case: 9 - 26
Cash $20 1% × 2016 Sales $22
Accts. rec. $280 14% × 2016 Sales $308
Total CA $700 $770
Line of credit $0 Add LOC if fin. deficit $59
Total CL $80 $147
f. 2. What are some alternative ways than those in the preliminary financial policy that
Hatfield might choose to eliminate the financing deficit?
Answer: Here are some alternative ways to eliminate the deficit:
Cut dividends.
Add long-term debt.
Issue common stock.
Cut back on growth in operating plan.
Improve operating plan.
Mini Case: 9 - 27
g. Repeat the analysis performed the previous question but now assume that Hatfield
is able to improve the following inputs: (1) reduce operating costs (excluding
depreciation)/sales to 89.5% at a cost of $40 million; and (2) reduce
inventories/sales to 16% at a cost of $10 million. This is the Improve scenario.
Answer: The impact on the operating plan is shown below:
Scenario: Actual Forecast

Improve 2015 2016 2017 2018 2019
NOPAT $90 $106 $114 $120 $126
NOWC $620 $594 $642 $674 $707
Total op. capital $1,120 $1,144 $1,236 $1,297 $1,362
FCF $82 $23 $58 $61
Growth in FCF -72% 157.3% 5.0%
ROIC 8.0% 9.2% 9.2% 9.2% 9.2%
Scenario:
Improve
Horizon Value: Value of operations $1,314
+ ST investments $0
9(1+gL )
HV2019 = (WACC − gL )
= $1,598 Estimated total intrinsic value $1,314
− All debt $500
Value of Operations: − Preferred stock $0
Present value of HV $1,132 Estimated intrinsic value of equity $814
+ Present value of FCF $182 ÷ Number of shares 10
Value of operations = $1,314 Estimated intrinsic stock price = $81.37
Mini Case: 9 - 28
The impact on the financial statements is shown below.
Scenario:
Improve
Cash $20 1% × 2016 Sales $22
Accts. rec. $280 14% × 2016 Sales $308
Total CA $700 $682
Line of credit $0 Add LOC if fin. deficit $0
Total CL $80 $88
Mini Case: 9 - 29
Improve 2015 Input Basis for 2016 Forecast 2016
Sales $2,000 110% × 2015 Sales $2,200
Op. costs (excl. depr.) $1,800 89.5% × 2016 Sales $1,969
Depreciation $50 10% × 2016 Net fixed assets $55
EBIT $150 $176
Less: Interest on LTD $40 8% × Avg bonds $40
Interest on LOC $0 8% × Beginning LOC $0
Pretax earnings $110 $136
Taxes (40%) $44 40% × Pretax earnings $54
Net income $66 $82
Regular common dividends $20 110% × 2015 Dividend $22
Special dividends $0 Pay if financing surplus $36
Addition to RE $46 Net income – Dividends $24
Increase in spontaneous liabilities (accounts payable and accruals) $8

+ Increase in long-term debt and common stock $8
+ Net income minus regular common dividends $0
Increase in financing $60
− Increase in total assets $68
Amount of deficit or surplus financing: $32
If deficit in financing (negative), draw on line of credit $36
If surplus in financing (positive), pay special dividend $0
g. 1. Should Hatfield implement the plans? How much value would they add to the
company?
Answer: Improvement in value of operations: $1,314 − $958 = $356

Cost of improvements = $50
Company should make improvements.
g. 2. How much can Hatfield pay as a special dividend in the Improve Scenario? What
else might Hatfield do with the financing surplus?
Answer: Hatfield can pay a special dividend of $35. Instead, Hatfield could repurchase stock,
repay debt, or purchase marketable securities.
Mini Case: 9 - 30
Another random document with
no related content on Scribd:
“Ainsi que mes chagrins, mes beaux jours sont
passés,
Je ne sens plus l’aigreur de ma bile première,
Et laisse aux froids rimeurs, une libre
carrière[81].”
Boileau, Epist. 5. à M. Guilléraques.
There are, doubtless, besides those which I have enumerated,

many tombs deserving of notice; but I have specified these, on
account of the celebrity of the artists, or that of the persons whose
memory the monuments were intended to record. I send you a very
imperfect account, yet it is the result of a six hours’ visit, made with
no little care and attention.
Le Noir’s catalogue, which, I understand, is now translating into
english, concludes with a curious account of the state in which the
bodies of the former kings of France were found at St. Denys, when,
in the year 1793, the national convention, with a savage disregard of
decency, and with a contempt for departed grandeur scarcely
credible, ordered that the kings, princes, and other great men, who
had for fifteen hundred years lain in peace at St. Denys, should be
dragged from their tombs, in order that the lead, of which their coffins
were made, should be converted into ball.
You will be surprised to hear, that the celebrated Turenne,
preserved like a mummy, was instantly recognized by the
resemblance which he still bore to his busts and pictures; and Henry
the fourth was yet so perfect, (though he died in 1610), that not a
feature was altered.
This account is already of such a length, that I shall make no
apology for abruptly concluding it.
I am, &c.
POSTSCRIPT.
Returning home to day, at half past four o’clock, from viewing
some of the sights, (which I have mentioned in my letter), we found a
messenger waiting with a note from the Thuilleries. It proved to be
an invitation to Mrs. ⸺, from the first consul, asking her to dinner
the same day at five. She dressed as quickly as possible, and drove
to the palace. She is just returned; and from her statement, I send
you the following short account.
The entertainment was extremely elegant, and the sight very
striking. More than two hundred persons sat down to table in a
splendid apartment. The company consisted, besides the family of
Bonaparte, of the ministers, the ambassadors, several generals,
senators, counsellors of state, and other constituted authorities. The
number of women present was by no means in proportion to that of
the men, and did not exceed fifteen. All the english ladies, who had
been presented to madame Bonaparte, were invited (though not
their husbands) to this entertainment; but it happened, that only two
remained at Paris.
The dinner was served entirely on plate and Sèvre china, the latter
bearing the letter B on every dish, and every plate; and the plateau
was covered with moss, out of which arose innumerable natural
flowers, the odour of which perfumed the whole room.
The first consul and madame Bonaparte conducted themselves
with much ease, and spoke very affably to those around them.
The servants were numerous, splendidly dressed, and highly
attentive. The dinner lasted more than two hours.
LETTER XXX.
General account of literary establishments at Paris.—National library.—
Manuscripts.—Memoirs of his own times, by Lewis XIV.—Fac simile
of a love letter of Henry IV.—Cabinet of medals.—Cabinet of
engravings, &c.—Library of the Pantheon.—Mazarine library.—Library
of the Institute.—Libraries of the senate, the legislative body, and
tribunate.—The Lycées, now called les Athénées.—Admirable
lectures given at one of them.—Professors Fourcroy, Cuvier, and la
Harpe.—“L’Institute national.”—“Jardin national des Plantes”—
Collection of birds, plants, fossils, and insects, in the house attached
to the “Jardin des Plantes.”—“Cabinet de l’École des Mines, à l’Hôtel
des Monnoies.”—Great opportunities afforded at Paris of cultivating
science and literature in all their various branches.
Paris, may the 10th, 1802 (20 floréal.)
my dear sir,
I have postponed speaking to you of the literary establishments of
Paris, till my residence here had been sufficiently long to enable me
to give my opinion with some degree of certainty.
Perhaps there is no town in the known world, which affords such
favourable opportunities of acquiring and cultivating knowledge, as
that from which I am now writing. On this subject, equality in the best
sense exists; and while the poor man has the finest libraries, and
most extensive collections opened to his use, without any expense
whatever, he, whose circumstances are moderately easy, obtains,
for a trifling consideration, every possible means of additional
improvement.
The national library, which existed during the monarchy, and was
founded by Charles the fifth, occupies a large building in the rue de
la Loi (ci-devant de Richelieu). An elegant staircase, painted by
Pelegrini, leads to the spacious apartments on the first floor, which
take up three sides of the large court by which you enter, and which
contain no less than three hundred thousand printed volumes. Five
or six rooms, well lighted and well aired, offer on each side the best
books, in every science and in every language. Tables are placed for
the convenience of students, and attentive librarians civilly deliver
the works which are asked for.
In the second room is a curious piece of workmanship, called “le
Parnasse françois[82]” by Titon Dutillet, in which the different poets
and writers of France are represented as climbing up the steep
ascent of that difficult but inspired mountain. In my opinion, it
deserves attention more as a specimen of national taste, and private
industry, than as a production either of genius or of beauty.
In the third “salon” are the celebrated globes, the one celestial, the
other terrestrial, made in 1683, by the jesuit Coronelli, for the
cardinal d’Estrées. They are of immense dimensions, but require
new painting; as, in the first place, they were made before the last
discoveries, and secondly, the colours are almost entirely effaced by
the lapse of time.
This admirable library, which also contains collections of medals,
and other curiosities, is open to all persons who choose to attend as
students, without any expense, recommendation, or favour, every
day in the week; but, to prevent the labours of these being
interrupted, the visits of such as only come from motives of curiosity
are limited to two days in seven. I saw, with pleasure, that the object
of this splendid institution is fully answered. Forty or fifty young men,
deeply intent on the subject of their inquiries, were seated in different
parts of the room, and seemed to pursue, with enthusiasm, those
studies, which the liberality of their country thus afforded them the
means of cultivating.
The gallery of manuscripts (called the gallery of Mazarine)
contains thirty thousand volumes, generally on the history of France,
and more particularly relating to facts which have taken place since
the reign of Lewis XI, twenty-five thousand of which are in learned or
foreign languages. The librarian, to whose care these precious
papers are entrusted, was known to a gentleman who accompanied
me, and through his goodness we saw several, which are not
commonly exhibited.
I was much surprised at finding, in the hand writing of Lewis XIV.
memoirs of his own times, so accurately taken, that, with very little
difficulty, they might be prepared for the press. I understand that a
gentleman, belonging to the library, began this useful task, and had
made considerable progress, when a sudden illness deprived his
country and the literary world of his services.
I was not a little entertained with the love letters of Henry IV.,
which are in perfect preservation, and some of which have, I believe,
been published. The following is a fac simile of one, which
particularly attracted my notice:
“Mon cher cœur, nous venons de dyner

ceans, et sommes fort sous. Je
vous veyrré devant que partyre de Parys
vous cherryre non comme yl
faut, mes comme je pourre
Ce porteur me haste sy fort que
je ne vous puys fayre que ce
mot bonsoyr le cœur a moy je
te bese un mylyon de foys
8
ce xiiiiime octobre 8 h 8
8
HENRY[83].”
As the tokens of regard, which the gallant Henry thought his

mistress deserved, were only limited in number to a million, we
cannot too much admire the prudence with which he, who was never
known to break his word, promised to testify his affection, not
according to the merit of the lady, but to the powers of her lover.
The five large rooms on the second floor contain the titles and
genealogies of private families, which, though forbidden, since the
revolution, to be kept by individuals, are here preserved, in order to
ascertain the claims of property, and to assist the researches of
historians. They are contained in five thousand boxes, or porte-
feuilles, and are arranged and labelled with the greatest precision.
The cabinet of medals is ornamented by drawings over the doors
by Boucher; by three large pictures, by Natoire, representing Thalia,
Calliope, and Terpsichore; by three of Carlo Vanloo, representing
Psyche led by Hymen, the inventress of the flute, and the three
protectors of the Muses. The cabinet of antiques, above stairs,
contains the busts, vases, inscriptions, instruments of sacrifice, &c.
collected by the celebrated Caylus.
The cabinet of engravings, which occupies what is called, in
France, the “entresol,” or the floor between the first and second,
consists of five thousand volumes, divided into twelve classes. The
first contains sculptors, architects, engineers, and engravers,
arranged in schools. The second, prints, emblems, and devices of
piety. The third, greek and roman fables and antiquities. The fourth,
medals, coins, and arms. The fifth, public festivals, cavalcades, and
tournaments. The sixth, arts and mathematics. The seventh, prints
relating to romances and works of pleasantry. The eighth, natural
history in all its branches. The ninth, geography. The tenth, plans
and views of ancient and modern edifices. The eleventh, portraits of
persons, of all conditions, to the number of fifty thousand; and the
twelfth, a collection of fashions and costumes of almost every
country in the world, from the porte-feuille of Gaigniéres. This last
class is said to contain the most extensive collection yet known of
french fashions, from the time of Clovis to the present age. The
greater part of the sheets are coloured, some are on vellum, copied
from glass windows, from pieces of tapestry, and from figures on
tombs. The picture of king John, being the first specimen of french
painting, is found in this collection. It is well preserved.
I ought not to conclude my account of the national library without
mentioning, that among the manuscripts there are several in the
persian, arabic, and Chinese languages.
Besides the “national library,” there is the library of the Pantheon
(or St. Généviève), consisting of eighty thousand volumes, and two
thousand manuscripts, open every day from ten till two o’clock.
The Mazarine library, or (“des quatre nations,”) is open every day,
from ten till two o’clock (excepting on the 5th and 10th of each
month), and contains sixty thousand volumes.
The library of the “Institute” is open every day to members, and
every 15th of the month to the public.
The legislature, the tribunate, the senate, and the other constituted
authorities, have also their libraries.
In addition to these sources of knowledge, there are several
literary institutions, called, when I first came here, “des Lycées, or
Lyceums,” but which, in consequence of the national colleges lately
established having taken that name, have changed theirs, and
assumed the appellation of “des Athénées.” The most distinguished
of these, “le Lycée,” (or, according to its new title, “l’Athénée,”),
“republicain,” has been the principal source of my amusement at
Paris. It consists of annual subscribers, who, for the moderate sum
of four louis, enjoy all its benefits. The society has a large floor, or
apartment, situate near the “Palais Royal,” (in a street called by its
name); and it is open the whole of every day for the use of the
subscribers. There is a small library, where all the periodical
publications and newspapers are taken in; and while three or four
rooms are appropriated to conversation, one is devoted to reading,
and profound silence is there ordered and maintained. In addition to
these, there is an excellent lecture room, with all the necessary
apparatus for experiments, in which the ablest men in France appear
as professors. The subject of the lectures, which are regularly given,
always twice, and frequently three times, in the course of the day,
are literature, the sciences, and modern languages. When I add, that
Fourcroy takes the chymical department, that Cuvier reads on
natural history, and that la Harpe, till banished by the government,
was the professor of literature, you will readily allow, that no
establishment can be better organized. Besides these, “Hassenfratz”
gives very good lectures on agriculture, and the studies connected
with that science. “Sué,” as an anatomist, is justly celebrated; and
the other professors, in their different lines, prove themselves well
qualified for the tasks assigned them. With “Fourcroy,” and “Cuvier,”
I was particularly delighted; and it is impossible, without having
heard them, to form an idea of the clearness and eloquence with
which they explain the subjects of their respective departments. As
to “la Harpe” I must confess, I was not a little disappointed. From his
great renown, and from the encomiums past on him, in early life, by
Voltaire, I expected to have been at once pleased, instructed, and
surprised. In these hopes I was strongly encouraged by the manner
in which his lectures were spoken, of at Paris, and by the crowds
which flocked to the “Lycée,” whenever it was his turn to fill the chair.
Dreadful was my disappointment, when, at last, I heard him.
Pompignan, la Motte, Fontenelle, and some other authors of that
stamp, were the subjects of his discourses; and, beginning with
telling us that these writers were either entirely forgotten, or
deserved to be so, he continued, for whole days together, to drag
their ghosts before his audience, whom he seemed to convert into a
“tribunal révolutionaire” of criticism, and to attack their memory with
all the warmth and violence of an “accusateur public.” These
philippics against dead and neglected authors, filled up with long
quotations from the works which he ridiculed, interlarded with attacks
on those philosophical and political principles of which he was
originally the ardent advocate, and enlivened now and then with a
joke, and sometimes with an anecdote, constituted the whole merit
of his lectures. Yet the members of the “Lycée” heard him with
wonder and admiration; and whenever he threw down his book,
turned round with a look of self-complacence, or filled his tumbler
with lemonade from the decanter always placed by his side, the
signal was instantly taken, and loud and repeated applauses
thundered from every corner of the room. To account for this
partiality, I must repeat, that every thing at Paris is ruled by fashion;
and la Harpe being generally considered as the most distinguished
literary man now alive, every thing which fell from his tongue was
necessarily excellent; and I have no doubt, that if he had contented
himself with reading an article from one of the newspapers of the
morning, he would have been equally admired and as warmly
applauded.
The “Lycée” is altogether a most excellent establishment; and,
considering, that two lectures, and frequently three, are given six
days in every week, and that these lectures are included in the
subscription, the price of four louis is very moderate.
I cannot speak properly of this institution as a place of society, as I
seldom staid there after the conclusion of the lectures; but I am told,
that the members are, generally speaking, respectable men. The
rooms are constantly full, and some persons may be said nearly to
pass their lives there, since they are scarcely ever absent, except at
the hour of dinner. I think it not improbable, that much amusement
may be found in the conversation of the members; but I confine my
recommendation to the advantages which the “Lycée” affords, as an
easy source of profitable knowledge.
“L’Institut national,” that celebrated society, which has succeeded
“l’académie française,” which is held up as the great republican
repository of genius and learning, and into which admittance is
solicited with so much eagerness, both at home and abroad,
consists of one hundred and forty-four members resident at Paris,
and of twenty-four foreign associates. It is divided into three classes;
the sciences, physical and mathematical; the sciences, moral and
political; literature and the fine arts. Each of these classes is again
subdivided.
The “Institut” has a public séance, or meeting, on the 15th of every
month. I was present at one of these assemblies; and I am ashamed
to confess, that I had difficulty in refraining from laughter. The society
holds its sittings in a spacious room in the palace of the Louvre. The
members were seated in such silent, solemn state, each with his
reading desk, books, ink, and wax lights before him, while a dull and
uninteresting paper was reading, that their gravity produced the
opposite effect on me, and “malgré” my respect for the
establishment, and for those who belong to it, it was not without a
struggle that I composed my features, and checked the impulse of
nature. At last, fortunately for me, “Colin d’Harleville,” a dramatic
writer of merit, ascended the rostrum, and read a kind of funeral
oration, or eulogy, on the memory of an author of reputation, lately
dead. The simplicity of the speaker’s manner, the harmony of his
voice, and the feeling which he displayed, in deploring the loss and
proving the worth of his friend, charmed every ear; and,
notwithstanding the pompous faces which surrounded me, I became
as melancholy as they wished to appear serious. The members of
“l’institut national” wear a blue cloth uniform, richly embroidered with
silk of the same colour.
The “Jardin national des Plantes[84],” founded originally by Buffon,
is one of the most interesting objects at Paris. Naturalists, and
persons fond of botany, have here every opportunity of cultivating
those useful studies, and of gratifying, in the amplest manner, their
favourite taste. The garden itself, which is extensive, and reaches to
the river, contains every kind of curious and exotic plant. There is a
greenhouse likewise, filled with such trees, the tender nature of
which cannot bear the coldness of a northern atmosphere.
There is also a ménagerie, or collection of animals, among which
every kind of fierce, rare, and foreign quadrupeds may be found. On
my first arrival at Paris, there were two elephants, of different sizes,
who had lived several years together in the same stable. They were
of very considerable dimensions, equal to those, the effigy of which
is sometimes seen on a London stage. The male has lately died, and
“Cuvier” is to anatomise the body, and give a lecture on the subject.
The female, for some time after the death of her companion, showed
evident symptoms of grief, and even refused, at first, every kind of
nourishment. The house attached to “le Jardin des Plantes” is filled
with a precious collection of curiosities in natural history, properly
arranged, and correctly named. Several rooms are filled with these
valuable objects; and I am told, by persons acquainted with such
subjects, that very little is wanting to make this dépôt complete.
Stuffed quadrupeds[85], birds, plants, fossils, fish, and shells, offer
every kind of variety; and even the ignorant man finds here a source
of never-failing amusement. The collection of insects is particularly
curious and extensive. I believe it is considered as the finest in the
world.
The “Jardin des Plantes,” like every other national establishment
at Paris, is seen gratuitously, and is open to foreigners every day,
while frenchmen are only admitted three or four times in each week.
It is impossible to mention too often, or to admire too highly, a trait of
hospitality so truly magnificent.
The “cabinet de l’École des Mines” is a superb establishment. It is
situate in the principal building towards the key of the “hôtel des
Monnaies.” It was formed in 1778, of the collection which the famous
mineralogist, le Sage, was eighteen years in putting together. The
middle of the cabinet forms an amphitheatre, capable of containing
two hundred persons. Glass cases enclose, in the finest order,
minerals of every kind, and from every part of the world. Four other
separate cases offer models of machinery. On the stairs, leading to
the gallery, is the bust of monsieur le Sage, which was placed there
by the gratitude of his pupils. The gallery itself is surrounded with
cases, containing specimens of the productions of mines, too
numerous to be placed with those which are in the first cabinet of
mines. The interior of the cabinet is 45 feet long, by 38 wide, and 40
feet high. All the english, who have seen “l’École des Mines,” agree,
in speaking of it as one of the most interesting sights of this
interesting capital[86].
Beside the great establishments which I have mentioned, there
are several others, which it would be an endless task to attempt to
specify.
There are also many “lycées” or “athénées,” beside that of which I
have spoken. There are likewise private subscription lectures on all
subjects, many of which are of high repute, such as those of Mr.
Charles on natural philosophy, of the excellence of whose
experiments, and the clearness of whose discourses, I hear a very
favourable account.
The english, german, and italian languages, are taught by
professors at the different “lycées,” by particular subscription, and for
moderate sums in other places. In short, there is no literary pursuit,
of any kind, which any man, in any circumstances, may not cultivate
with success at Paris.
Fortitude is necessary to resist the opportunities of committing
crimes, if the individual be poor, and of falling into the temptations of
pleasure, if he happen to be rich. Guarded against these respective
evils, the industrious scholar, whether covered with rags, or “clad
every day in purple,” may move on in the career of letters with every
possible advantage, and with the certitude of, at last, obtaining the
utmost object of his wishes. If any equality exist in France, it is found
in the fount of knowledge, which literally
“⸺In patriam populumque fluxit.”
In addition to the opportunities afforded for literary improvement

already mentioned, the price of books is moderate; and “cabinets
litéraires” offer in every quarter of the town, and almost in every
street, newspapers, pamphlets, and periodical works.
Paris, however, does not possess many circulating libraries, and of
the few which exist, I can give no favourable account. Perhaps the
facility with which works of value are consulted, and the trifle for
which those of the day are bought, are the reasons of this deficiency.
It is, however, a considerable convenience wanting in so great a city;
and I think that such an establishment, on a liberal and extended
scale, would be a profitable and useful subject of speculation.
I have said nothing of “la Société des belles Lettres” of “la Société
de Médecine” of “la Société d’Institution,” &c. Were I to enumerate all
the useful establishments, both public and private, connected with
literature, my letter would soon be swelled into a volume, and that
even of no small dimensions. I shall, therefore, now conclude my
account by observing, that whatever are the particular objects, to
which a studious man wishes to direct his attention, “quod petit hic
est,” he will find here all the facilities which he can possibly desire for
pursuing his favourite science, with little or no expense and great
advantage.
I am, &c.
LETTER XXXI.
Calculation and estimate of expenses at Paris.—List of hotels, traiteurs,
&c.
Paris, may the 12th, 1802, (22 floréal.)
my dear sir,
You know how much I dislike the petty detail of economical
arrangements, and will therefore pardon me for having so long
delayed to speak to you of the expenses and mode of living at Paris.
I have not forgotten your queries, and will, in this letter, endeavour to
answer them as fully as possible. You will, at least, derive one
advantage from my apparent neglect; that the information which I
shall now send you, is not hastily given, but the result of experience,
gained during a residence of nearly seven months.
Persons who have represented Paris (to use a vulgar phrase) as a
cheap place, have either been greatly deceived themselves, or have
intended purposely to deceive. The difference between the expense
of living in London and in Paris, appears to me infinitely less than it is
generally supposed. It is true, indeed, that a french family will
apparently support a much more elegant establishment on a given
income, than an english one can in London; but I believe the cause
arises almost entirely from the superiour economy and arrangement
of the former, from the sparing system observed in the interiour of
private houses, and from the constant and unvarying attention to the
minutiæ of every disbursement. Though the table of a Parisian
boasts, when company are invited, every kind of luxury, yet I have
reason to suspect, that, on ordinary occasions, “le bouilli[87],” and “le
vin ordinaire,” form its principal support. A carriage, which has been
in a family twenty or thirty years, is treated with all the respect due to
its antiquity, and is seldom or ever discarded on account of its
oldfashioned shape or faded colour; and horses, used only now and
then, may be fed on hay and straw. Liveries are forbidden by the law;
and servants are therefore permitted to wait in the tattered garments
which their present master has left off, or in those which they have
collected in a former service.
The drawing-rooms, and “salles à manger,” are lighted, even at
the largest assemblies, with oil, instead of wax; and antichambers
and staircases are so dark, that to find one’s way into the principal
apartment is generally a service of difficulty, if not of danger. As to
fire, on common occasions, one in the bed room either of “madame,”
or “monsieur,” is thought sufficient, with the addition of a “poële,” or
stove, which is so contrived, as to heat both the eating room, and the
antichamber, in which latter the servants always sit. In respect to
dress, an old great coat (or “riding coat,” as they call it) is often worn
in the house, by gentlemen, and the belles who appear with the
greatest splendour in the evening, sometimes pass their morning in
a powdering gown, or “robe de chambre.”
The same kind of rigid economy is observed in their amusements.
A family of distinction will occupy a box “au second, or au
bagnoir[88],” to save a few livres; and I knew a young lady of
considerable fortune, who expressed an anxious wish to see the first
appearance of Vestris, and who, when a place was offered her,
refused it, malgré the general passion for spectacles, and the
celebrity of this, when she found that the price of the ticket was nine
francs (or seven and sixpence english). I have entered into this
explanation, to account for the apparently splendid establishments of
persons of moderate fortunes, which might otherwise seem to
contradict the opinion which I am about to give, and which I have
already hinted.
I repeat, then, that an english family settling here[89], with english
ideas and english habits, would spend very little less than they would
do in London, with a similar establishment.
To enable you to judge for yourself on this subject, I shall mention
the prices of the most essential articles of expense; some of which
are lower, while others are infinitely higher.
Meat is much cheaper, being only eleven or twelve sols per pound
(or five or six pence english).
Bread bears, at present, nearly the same price in the two
countries.
The keep of horses costs infinitely less at Paris, than in London.
Poultry is cheaper; and wine of the best kind may be bought for
something more than we pay for good port.
On the other hand, house rent is equally dear, if not dearer.
Furniture is exorbitant; and dress of all kinds, both for men and
women (only excepting shoes and gloves) is, beyond comparison,
dearer in price, and more expensive in its kind.
The price of amusements, in the first places, is nearly the same at
the large theatres of Paris, as at those of London; and spectacles,
being infinitely more frequented at the former than in the latter city,
much more is spent, in this article, in the one than in the other
capital.
Groceries are dearer, and fuel at least double. Putting these
articles, the one against the other, perhaps with economy eleven
hundred pounds in Paris might purchase as many conveniences as
twelve in London. But I think even this difference is liberally allowed.
Having given this rough calculation of family expenses, I shall
proceed to speak more particularly of those of a foreigner, or
temporary resident. On this point I can be more positive, having
experience for my guide.
A job carriage and pair of horses cost from twenty to twenty two
louis per month, according to the manner in which you are served. A
pair of horses, without the hire of a carriage, may be had for fifteen
or sixteen louis per month. In both cases the coachman is paid by
the jobman; but the former expects a trifle, as a mark of your
approbation.
A “laquais de place” asks four, but will take three, livres (or half a
crown English) per day.
Apartments vary so infinitely in price, according to the part of the
town where they are situate, according to the number of rooms
wanted, according to the height of the floor, and, above all, according
to the bargain made by the individual wanting them, that it is very
difficult to fix any thing like an average. I shall only say, generally,
that I think a single man may be well lodged (at a price proportioned
to the accommodation which he requires) from five to twelve louis
per month; and a family of two or three persons, with as many
servants, from twelve to thirty louis.
A “traiteur” will supply a dinner at six livres (or five shillings) per
head; but the fare will neither be very good, nor very abundant.
Wine, of the best quality, if taken from the “traiteur,” or the master
of the hotel, will cost from five to six livres the bottle. The same may
be had from a wine merchant at about half the price. I ought to add,
that it is not expected here, as in England, that the wine should
necessarily be ordered from the person who supplies your table.
The price of washing is greater than in London; and the english
ladies complain much of the manner in which it is executed.
Fuel is immensely dear. A “voie de bois,” or load of wood, the
contents of which one fire will consume in ten days, costs about
thirty two or thirty three livres (making about twenty six or twenty
seven shillings english.)
About nine livres (or seven shillings and sixpence) are paid for
admittance in the first places for each person at the “opera,” at “le
théâtre de la Feydeau,” and at “le théâtre de la rue Favart;” at the
“théâtre françois” six livres, twelve sols, (or five shillings and
sixpence english) and in the little theatres, half a crown, or three
shillings. I cannot give the prices exactly, as they vary according to
the manner in which you go to the play-house. In taking a box, more
is paid for each ticket, than what is otherwise paid simply for the
admittance of each individual at the door.
Clothing is very expensive. A plain frock of superfine cloth costs
from four louis to five and a half, according to the fashion of the
tailor: and I am told, that ladies’ muslins are at least four times
dearer than in London.
About lodgings, it is very necessary that those who intend visiting
Paris should make previous arrangements. The hotels are not so
numerous as before the revolution; and the difficulty of getting well
accommodated is much greater than any one, who has not been
here, can possibly conceive. Great advantage is also taken of the
situation of strangers, who arrive (unprepared) at one of these
houses with post horses, the drivers of which are always impatient,
and very often impertinent, if you detain them long in seeing rooms,
or go to several hotels, before you are settled.
To enable you and your friends to form some idea of the merits of
the different hotels, and accordingly to give directions to your
correspondents, I will add a list and short account of the most
celebrated.
“L’Hôtel de Grange Batelière, rue de Grange Batelière,” in the
Chaussée Dantin, (where Lord Cornwallis lodged) is a large and
spacious house, in which there are many handsome apartments. It
has also the advantage of a fine and extensive garden. I think I have
heard, that the charges here are rather high. The situation of the
house is excellent; adjoining the Boulevard, nearly opposite “la rue
de la Loi (or de Richelieu),” and in that part of the town, which is now
esteemed the most fashionable.
“L’Hôtel de l’Empire,” rue Cerruti, (formerly the private house of M.
la Borde, the king’s Banker) is much frequented by the english. It is
of course expensive. The high reputation which this hotel enjoys,
induced me to go there on my first arrival. I was much disappointed. I
did not find either the lodgings good, or the cooking very superiour.
The principal apartment is certainly very splendid, the price of which
is ninety louis per month; but the other rooms have nothing very
particular to recommend them. Every kind of refreshment is found in
the house, and charged by the article, as at the hotels in London,
and at about the same prices.
This house is also in the “Chaussée Dantin,” and not far distant
from “l’Hôtel de Grange Batelière.”
In the “rue de la Loi,” (or “de Richelieu”) there are several hotels;
but the situation, though extremely central and convenient, has the
disadvantage of being very noisy. The upper part of the street, near
the Boulevard, is the most agreeable; and in that position are “l’Hôtel
de l’Europe,” and “l’Hôtel des Étrangers.” They appear good houses.
I know nothing of their character.
“L’Hôtel d’Angleterre, rue des Filles de St. Thomas,” very near the
“rue de la Loi,” has been inhabited by several English this winter.
The charges are said to be expensive. The situation is convenient;
but it is noisy, and surrounded by houses.
“L’Hôtel des Étrangers, rue Vivienne,” very near the “rue de la Loi,”
and the “Palais Royal,” is also in the centre of the town. This house I
have heard more generally commended by those who have lodged
there, as to its prices, accommodations, and kitchen, than any other
at Paris; but I cannot say I like the street where it stands, which is
both close and dirty.
“L’Hôtel de Mirabeau, rue de Helder,” is in a new street, near the
Boulevard. It seems a good house. I do not know its character.
The two hotels, the situation of which is the most agreeable, being
both near the Boulevard, the Thuilleries, and the Champs Elisées,
are “l’Hôtel de Courlande, place Louis XV, (or de la Concorde”), and
“l’Hôtel des Étrangers, rue Royale (or de la Concorde).” The former
is part of that fine building, the “Garde Meuble,” and stands in the
most beautiful “place,” or square, of Paris. The windows command a
delightful view of the “place,” the bridge, the river, the Thuilleries, and
Champs Elisées. The house is newly furnished, and only lately
opened. I am sorry to add, that it consists but of few apartments; but
those which there are, are elegant and spacious. The prices are
extremely high. I was asked forty louis a month for a second floor.
The other house, I mean “l’Hôtel des Étrangers, rue Royale (or de
la Concorde)” standing in a very wide street, which runs from the
Boulevard to “la place Louis XV,” has equal advantages as to the
neighbourhood of all the public walks, with the hotel of which I spoke
last; but it does not command the same view. I am forced also to
mention, having lived two months in the house, that the landlord is a
very insolent fellow, and his wife, if possible, more impertinent than
himself.
There are three small hotels, called, “l’Hôtel de Galle,” “l’Hôtel des
Quinz Vingts,” and “l’Hôtel de Carousel,” all in the immediate
neighbourhood of the palace of the Thuilleries, of which each
commands a view. A single man would be agreeably lodged at one
of these; but I should not suppose, that there was sufficient
accommodation at either for a family consisting of several persons.
In the “Fauxbourg St. Germain,” the hotels formerly frequented by
the english either exist no more, or have lost their reputation. Those
only which are of any repute in this part of the town, seem to be
“l’Hôtel de Rome, rue St. Dominique,” where there are several
handsome apartments, more remarkable for their size than their
cleanliness; and “l’Hôtel de Marengo,” in the same street, and next
door to the former. The lodgings of the latter are good; but some
friends of mine, who lived there, complained much of the
disagreeable state, in which they found the beds. Both these hotels
have good gardens.
“L’Hôtel de Caramont,” in the same street, belonging to the ci-
devant comte of that name, though not an “hôtel garni,” is let in
apartments, the greater part of which were occupied first by Mr.
Jackson, and afterwards by Mr. Merry. The rooms are delightful; but
it rarely happens, that any are vacant. I forgot to mention, that there
is also in this street a small hotel, called, “l’Hôtel de Jura,” which is
well furnished, and has a pretty garden.
The houses, which I have enumerated, are those which are the
most known, the best situate, and the most esteemed. Beside these,
there are “l’Hôtel de Vauban,” “l’Hôtel de Congrès,” and “l’Hôtel de la
Grand Bretagne,” all situate in “la rue St. Honoré,” and said to be
respectable houses. For those also who do not object to be
surrounded with bustle and noise, “l’Hôtel de la Chancellerie,” near
the “Palais Royal,” will offer good accommodations. I am told, the
apartments there are uncommonly elegant, and extremely
spacious[90].
To this account I must add a negative recommendation of la rue
Traversière, in which there are several hotels, and into which the
windows of some in la rue de la Loi also look. A perpetual market,
with all the attendant smells, renders the houses in “la rue
Traversière” extremely unpleasant; and the same reason obstructs
the passage, so that it is difficult, in a carriage, to find one’s way to
any door in this street. The caution is the more necessary, as
postboys frequently recommend the situation.
There is some objection to almost every hotel; I cannot, therefore,
recommend any one; but, were I to visit Paris again, I think I should
either try “l’Hôtel de Courlande, place Louis XV,” the situation of
which is incomparable; “l’Hôtel de Grange Batelière,” which, in
accommodations and size, is superior to any house of the same
kind; or “l’Hôtel des Étrangers, rue Vivienne,” which is universally
well spoken of by those who have inhabited it.
As to the “traiteurs,” or persons who supply you with dinners, they
sometimes belong to the house where you lodge, and sometimes
not.
I tried several during my stay at Paris, and I found them all so bad,
and so uncertain, that, were I to return, I would either hire a cook, or
dine constantly at the house of a “restaurateur[91].” The most
celebrated are, Naudit, and Robert, in the Palais Royal, Beauvillier in
the rue de la Loi, and Verry in the garden of the Thuilleries. Besides
the public room, which is always elegantly ornamented, there is, at
each of these places, several small rooms, or cabinets, for private
parties. A long bill of fare, called “la carte,” consisting of all the
delicacies of the season, and every variety of wine, with the prices
affixed to each article, is handed to you, and the dishes are no
sooner named, than they are instantly served. The apartments are
tastefully decorated, the linen and plate are particularly clean, and
the waiters civil, attentive, and well dressed. The cooking is
incomparable. Ladies, as well as gentlemen, dine at these houses,
and even in the public room several of the former are always
present. On a rough calculation, the expense of dining at one of the
first restaurateurs, including a fair quantity of the best wine, varies
from twelve livres (ten shillings) to a louis each person.
There are, however, inferiour houses of this kind, where, even for
trent-six sols (or eighteen pence english) a dinner of several dishes,

Instant Download PDF Intermediate Financial Management 12th Edition Brigham Solutions Manual Full Chapter

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Instant Download PDF Intermediate Financial Management 12th Edition Brigham Solutions Manual Full Chapter

Uploaded by

Copyright:

Available Formats

Intermediate Financial Management

12th Edition Brigham Solutions Manual

Intermediate Financial Management 12th Edition Brigham

Intermediate Financial Management 13th Edition Brigham

Intermediate Financial Management 11th Edition Brigham

Intermediate Financial Management 11th Edition Brigham

Intermediate Financial Management 10th Edition Brigham

Fundamentals of Financial Management 12th Edition

Essentials of Financial Management 3rd Edition Brigham

Fundamentals of Financial Management 15th Edition

Answers and Solutions: 9 - 1

Answers and Solutions: 9 - 2

AFN = (A*/S0)∆S - d(L*/S0)∆S - MS1(RR).

Answers and Solutions: 9 - 3

9-1 a. The operating plan provides detailed implementation guidance designed to

Answers and Solutions: 9 - 4

Additional Required Increase in Increase in

M(1 − POR )(S 0 )

d. The forecasted financial statement approach using percent of sales develops a

Answers and Solutions: 9 - 5

b. +. It reduces spontaneous funds; however, it may eventually increase retained

Answers and Solutions: 9 - 6

9-1 AFN = (A0*/S0)∆S – (L0*/S0)∆S – (PM)(S1)(1 – payout rate)

9-3 AFN = (0.625)($1,200,000) – (0.1125)($1,200,000) – 0.06($9,200,000)(1 – 0)

Answers and Solutions: 9 - 7

AFN = (A0*/S0)∆S – (L0*/S0)∆S – (M)(S1)(1 – payout rate)

Sales can increase by $5,202,312 – $5,000,000 = $202,312 without additional funds

9-5 a. Total liab. = Accounts + Long-term + Common + Retained

Long-term debt = $590,000.

Total liab. = Accounts payable + Long-term debt

b. Assets/Sales (A0*/S0) = $2,170,000/$3,500,000 = 62%.

AFN = (A0*/S0)(∆S) – (L0*/S0)(∆S) – (M)(S1)(1 – payout) – New common stock

Alternatively, using the forecasted financial statement method:

Answers and Solutions: 9 - 8

Total assets $2,170,000 0.62 $2,929,500

Current liabilities $ 560,000 0.16 $ 756,000

Answers and Solutions: 9 - 9

Accounts payable $ 50.00 × 2 = $ 100.00

Target FA/S ratio = $500/$2,000 = 0.25.

**Addition to RE = (M)(S1)(1 – Payout ratio) = 0.05($2,000)(0.4) = $40.

9-7 a. AFN = (A0*/S0)(∆S) – (L0*/S0)(∆S) – (M)(S1)(1 – payout)

Answers and Solutions: 9 - 10

Forecasted sales = $420 million

Accounts payable $ 9.0 0.0257 $ 10.80 $ 10.80

Answers and Solutions: 9 - 11

Dividends (45%) $ 837 $ 954

Answers and Solutions: 9 - 12

Accounts payable $ 4,320 0.1200 $ 4,968 $ 4,968

*From income statement.

b. Line of credit = $2,128 (thousands of $).

Answers and Solutions: 9 - 13

Forecast Pro Forma

Dividends: $ 108,000 Set by management $ 112,000

Garlington Technologies Inc.

Accounts payable $ 360,000 0.10 $ 396,000 $ 396,000

*See income statement.

Answers and Solutions: 9 - 14

Answers and Solutions: 9 - 15

Hatfield Medical Supplies (Millions of Dollars Except Per Share Data)

ROEHatfield = Profit margin × Asset turnover × Equity multiplier

ROEIndustry = Profit margin × Asset turnover × Equity multiplier

Data for AFN Equation

Here is the AFN equation:

AFN = (A/S0)∆S - d(L/S0)∆S - MS1(RR).

9-1 AFN = (A0/S0)∆S – (L0/S0)∆S – (PM)(S1)(1 – payout rate)

AFN = (A0/S0)∆S – (L0/S0)∆S – (M)(S1)(1 – payout rate)

AFN = (A0/S0)(∆S) – (L0/S0)(∆S) – (M)(S1)(1 – payout) – New common stock

9-7 a. AFN = (A0/S0)(∆S) – (L0/S0)(∆S) – (M)(S1)(1 – payout)

AFN = (A0/S0)∆S – (L0/S0)∆S – M(S1)(1 – Payout)