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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?

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Answer #1
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

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