Question 3:

Fast Mawar Bhd, a manufacturer of box mowers, reported net income of $15 million on revenues of $50 million last year, with $10 million in depreciation charges. The company had capital expenditures of $16 million, $10 million in total non-cash working capital, and a cash balance of $15 million. It distributed 50% of its earnings as dividends. No debt is currently outstanding.

Given that revenues, capital expenditures, and depreciation are projected to grow by 10% annually, and net income by 12% annually over the next four years, and assuming non-cash working capital as a percentage of revenues remains unchanged, estimate the company`s cash balance at the end of year 4. Also, determine the proportion of earnings that Fast Mawar needs to pay out as dividends to maintain a cash balance of $15 million by the end of year 4.

If Fast Mawar intends to preserve its existing cash balance of $15 million without issuing new shares and maintaining a 50% payout ratio, calculate the debt ratio the firm must adopt over the next four years to achieve a cash balance of $30 million by the end of the fourth year.