You have been asked to forecast the additional funds needed
(AFN) for Houston, Hargrove, & Worthington (HHW), which is
planning its operation for the coming year. The firm is operating
at full capacity. Data for use in the forecast are shown below.
However, the CEO is concerned about the impact of a change in the
payout ratio from the 10% that was used in the past to 25%, which
the firm's investment bankers have recommended. Based on the AFN
equation, by how much would the AFN for the coming year change if
HHW increased the payout from 10% to the new and higher level? All
dollars are in millions.
Last year's sales = S0 |
$300.0 |
Last year's accounts payable |
$50.0 |
Sales growth rate = g |
40% |
Last year's notes payable |
$15.0 |
Last year's total assets = A0* |
$500 |
Last year's accruals |
$20.0 |
Last year's profit margin = PM |
20.0% |
Initial payout ratio |
10.0% |
Select the correct answer.