Question

# A company’s sales last year were \$50000 and it operated at full capacity. Its sales this...

A company’s sales last year were \$50000 and it operated at full capacity. Its sales this year are expected to increase by 20%. The company needs \$0.5 of assets per dollar of sales to operate and its current liabilities are \$0.05 per dollar of sales. The company’s profit margin is 3% and its dividend payout ratio is 30%. What amount of additional funds does the company need to support this year’s projected sales?

 This year Last year sales 50000(1+.20)= 60000 50000 Profit margin 60000*3%= 1800 50000*3%=1500 Addition to retained earning [profit (1-dividend payout) 1800(1-.30)=1260 1500(1-.30)=1050 Balance sheet Asset 60000*.5= 30000 50000*.5=25000 Liabilities 60000*.05=3000 50000*.05=2500 equity 30000-3000=27000 25000-2500=22500

Equity at end =Equity at beginning +addition to retained earning in current period + additional financing needed

27000 = 22500+ 1260 +additional financing needed

additional financing needed = 27000- 22500-1260

= \$ 3240

#### Earn Coins

Coins can be redeemed for fabulous gifts.