Question

Please show work, thank you in advance.

Amex Corporation forecasts a 15% increase in sales, and similar effects for its accounts receivable ($3 million), inventory ($4 million), and accounts payable ($3.5 million). All other financial statement accounts will remain the same, and Amex will pay out all earnings to shareholders as dividends. What is Amex’s expected additional funds needed?

Group of answer choices

$1.05 million

$525,000 (correct)

$12.075 million

$8.05 million

Jones Corp. expects sales to increase 10% from this year’s level of $5 million. With a net profit margin of 8% and a dividend payout ratio of 30%, what financing for next year might be provided from internal equity sources?

$440,000

$132,000

$5.5 million

$308,000 (correct)

  

Answer 1

The additional funds needed is computed as shown below:

= % increase in sales x (Accounts receivables + Inventory - Accounts payable)\

= 15% x ($ 3,000,000 + $ 4,000,000 - $ 3,500,000)

= $ 525,000

The amount is computed as shown below:

= [ Current sales x (1 + growth rate) x net profit margin ] x (1 - dividend payout ratio)

= [ $ 5,000,000 x (1 + 0.10) x 0.08 ] x (1 - 0.30)

= $ 440,000 x 0.70

= $ 308,000

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