Sales 100,000,000 Profit Margin 7% Dividend Payout Ratio 40% Sales- increase nex

Question

Sales 100,000,000
Profit Margin 7%
Dividend Payout Ratio 40%
Sales- increase next year 10%
100
110,000,000

Balance Sheet (in $ millions)
Cash 2 Accounts payable 15
Accounts Receivable 20 Accrued wages 2
Inventory 23 Accrued taxes 8
Current Assets 45 Current Liabilities 25
Fixed Assets 40 Notes Payable 10
Common stock 15
Retained Earnings 35
Total liabilities &
Total assets 85 Stockholders' equity 85

Solution:
Change in sales________________
Required New funds_______________


RNF ______________

Explanation / Answer

Change in new sales: Sales are increased 10% over the current year. Current year sales are $100,000,000. New sales are 110% on previous sales. New sales      = 110%*$100,000,000                     = $110,000,000 Change in sales   = Next sales - Current sales                          = $110,000,000 - $100,000,000                          = $10,000,000 Therefore change in sales is $10,000,000. Required New Funds:          Required New Funds   = (Assets/Current year sales)*Change in sales - (Liabilities/Current year sales)*Change in sales - Net income*Retention ratio.    Assets   = Current assets + Fixed assets                = 85 million    Current year sales $100,000,000    Next year sales     $110,000,000    Change in sales      $10,000,000    Liabilities(Long-term) $10,000,000    Net income is 7% on sales = 7%*$100,000,000                                           = $7,000,000,000   Retention ratio is = 1- Dividend payout ratio                             = 1- 40%                             = 60%    Required new funds   = ($85,000,000/$100,000,0000)*$10,000,000 - ($10,000,000/$100,000,000)*$10,000,000 - $7,000,000*0.6                         = $8.5 million - $1 million - $4.2 million                         = $8.5 million - $5.2 million                         = $3.3 million. Therefore requred Ner Funds are $3.3 million. RNF is $3.3 million Change in new sales: Sales are increased 10% over the current year. Current year sales are $100,000,000. New sales are 110% on previous sales. New sales      = 110%*$100,000,000                     = $110,000,000 Change in sales   = Next sales - Current sales                          = $110,000,000 - $100,000,000                          = $10,000,000 Therefore change in sales is $10,000,000. Required New Funds:          Required New Funds   = (Assets/Current year sales)*Change in sales - (Liabilities/Current year sales)*Change in sales - Net income*Retention ratio.    Assets   = Current assets + Fixed assets                = 85 million    Current year sales $100,000,000    Next year sales     $110,000,000    Change in sales      $10,000,000    Liabilities(Long-term) $10,000,000    Net income is 7% on sales = 7%*$100,000,000                                           = $7,000,000,000   Retention ratio is = 1- Dividend payout ratio                             = 1- 40%                             = 60%    Required new funds   = ($85,000,000/$100,000,0000)*$10,000,000 - ($10,000,000/$100,000,000)*$10,000,000 - $7,000,000*0.6                         = $8.5 million - $1 million - $4.2 million                         = $8.5 million - $5.2 million                         = $3.3 million. Therefore requred Ner Funds are $3.3 million. RNF is $3.3 million          Required New Funds   = (Assets/Current year sales)*Change in sales - (Liabilities/Current year sales)*Change in sales - Net income*Retention ratio.    Assets   = Current assets + Fixed assets                = 85 million    Current year sales $100,000,000    Next year sales     $110,000,000    Change in sales      $10,000,000    Liabilities(Long-term) $10,000,000    Net income is 7% on sales = 7%*$100,000,000                                           = $7,000,000,000   Retention ratio is = 1- Dividend payout ratio                             = 1- 40%                             = 60%    Required new funds   = ($85,000,000/$100,000,0000)*$10,000,000 - ($10,000,000/$100,000,000)*$10,000,000 - $7,000,000*0.6                         = $8.5 million - $1 million - $4.2 million                         = $8.5 million - $5.2 million                         = $3.3 million. Therefore requred Ner Funds are $3.3 million. RNF is $3.3 million

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