1. What will be the required external funds for this company if sales are expected to grow by 20% and sales this year are $30,000, assets are $14,000, current liabilities are $420 and its dividends payout ratio is 30% with net income of $6,000? Assume that net capital assets and net income will grow at the same 20% rate as sales.
The external funds required is estimated at -$2,324. This indicates that the company does not require any external funds to sustain its current growth.
We first calculate the profit margin (M) as profit / sales, then sales growth for next year (change), sales in next year, retention ratio as 1-payout ratio.
Rest of the information is given
The formula for EFN is given by EFN = (A*/S0)?S – (L*/S0) ?S – M(S1)(RR)
where A* = Total assets, S0 = Initial sales, ?S = Change in sales, L = Spontaneous liabilities, M = profit margin, S1 = Sales in next period, RR = Retention ratio
The calculations are shown here (also attached the cell formulas for reference)
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