Question

A firm's financial statements for the current year are as follows (in millions of dollars).

                                  Balance Sheet

             Assets                                Liabilities and Equity

         Cash                         $0.5           Accounts Payable         $0.4

         Accounts Receivable     0.7    Accrued Liabilities           0.2

         Inventory                 0.4         Notes Payable            0.3

                               

         Current Assets           1.6         Current Liabilities            0.9

      

       Net Fixed Assets         2.5          Long-term Debt                  1.7

                                   Common Equity            1.5

         Total                           4.1         Total                           4.1

                              Income Statement

                     

                Sales                            $ 10.0

                Cost of Goods Sold                    6.6

                Gross Profit                          3.4

                Operating Expenses                   2.1

                Net Operating Income                 1.3

                Interest Expenses              0.3

                Earnings before Taxes                1.0

                Income Taxes                       0.4

                Net Income                         0.6

The management believes that sales will increase by 20 percent next year. The dividend payout ratio (Dividends / Net income) is targeted at 30 percent. The tax rate is 40%. The firm is operating at its full capacity, and therefore it will have to increase its fixed asset accordingly. What is the additional funding requirement for the next year (after the first step of financial planning)?

Answer 1