Question

1. What will be the required external funds for this company if sales are expected to...

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.

Homework Answers

Answer #1

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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