Galehouse Gas Stations Inc. expects sales to increase from $1,710,000 to $1,910,
ID: 2638559 • Letter: G
Question
Galehouse Gas Stations Inc. expects sales to increase from $1,710,000 to $1,910,000 next year. Mr. Galehouse believes that net assets (Assets ? Liabilities) will represent 45 percent of sales. His firm has an 8 percent return on sales and pays 20 percent of profits out as dividends. (Input all amounts as positive values.)
What effect will this growth have on funds?
If the dividend payout is only 15 percent, what effect will this growth have on funds?
a.
What effect will this growth have on funds?
Explanation / Answer
a)
?sales = 1910000-1710000 = $200000
owners equity = .45*200000 = $90,000
profit = 8%*1910000 = 152800
dividends = 20*152800 = 30560
change in cash = -90000 +152800 -30560
= 32240
the cash balance will be incresed by 32240
b)
dividends = 15%*152800 = 22920
change in cash = -90000 +152800 -22920
= 39880
the cash balance will be incresed by 39880
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