Franklin Industries Has a Current Net Working Capital of $1

question 24

Multiple Choice

Franklin Industries has a current net working capital of $1 million.It expects that this will grow at a rate of 3% annually forever.What growth rate in working capital would the firm require in order to achieve a $2 million increase in firm value,given that it has a cost of capital of 7%?

• A)2%
• B)2.7%
• C)3.3%
• D)1.4%
• E)4%

---

Definitions:

External Financing Need

The amount of funding required by a firm to cover investments and growth not financed by internal cash flows.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health and the ability to fund day-to-day operations.

Sustainable Growth Rate

The sustainable growth rate is a measure of how quickly a firm can expand its operations without needing to secure additional financing or significantly alter its financial structure.

Debt-equity Ratio

A measure representing the balanced usage of debt and shareholders' equity in funding company assets.