The Landis Corporation had 2008 sales of $100 million. The balance sheet items t
ID: 2682516 • Letter: T
Question
The Landis Corporation had 2008 sales of $100 million. The balance sheet items thatvary directly with sales and the profit margin are as follows:
Percent
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 15
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 40
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 15
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Profit margin after taxes . . . . . . . . . . . . . . . . . . 6%
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings
at the end of 2008 was $33 million. Common stock and the company
Explanation / Answer
A. RNF=A/S - L/S-PS2 .85 -.25-.06 (1-5) $12.75 MILL- $3.75 MILL - $3.45 MILL +$5.55 MILLION B. If Landis reduces the payout ratio, the company will retain more earningsand need less external funds. A slower growth rate means that less assets will have to be financed and in this case, less external funds would be needed. A declining profit margin will lower retained earnings and force Landis Corporation to seek more external funds C. Cash........... $ 5.75 Accounts Payable....... $17.25 Accounts Receivable..... 17.25 Accruals...... 11.50 Inventory...... 28.75 Notes Payable. 17.551 Net Fixed Assets............... 46.00 Long-Term Bonds 5.00 Common Stock.. 10.00 _____ Retained Earnings...... .............. 36.452 $97.75 $97.75 1 Original notes payable plus required new funds. This is the plug figure. 2 2009 retained earnings (beginning of 2009) + PS2 (1-D) or $33 mil + $3.45 mil Could you please explain in detail how I get to all of the figures in problem C? Posted by Amol srivastava 1236 days and 10 hours ago. Response From Expert I could not understand the question. Can you paste the original question?This is very confusing. 1236 days and 10 hours ago. Customer Reply I'm sorry. I will post the question first: Complete the Comprehensive Problem: Landis Corporation on p. 118. Here are the questions and answers: Landis Corporation External Funds Requirement The Landis Corporation had 2008 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2008 was $33 million. Common stock and the company's long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are currently $12 million. a. How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.) b. What will happen to external fund requirements if Landis Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin? Discuss each of these separately. Reduction of the payout ratio: Landis Corp. would retain more earnings and require less external funding. Slower rate of growth: This would also lead to requiring less external funding, because a smaller amount of assets will need to be financed. Suffers decline in its profit margin: This would lead to lower retained earnings, thus Landis Corp. would be strained to look for more sources of external funding. c. Prepare a pro forma balance sheet for 2009 assuming that any external funds being acquired will be in the form of notes payable. Disregard the information in part b in answering this question (that is, use the original information and part a in constructing your pro forma balance sheet). Here are the answers: A. RNF=A/S - L/S-PS2 .85 -.25-.06 (1-5) $12.75 MILL- $3.75 MILL - $3.45 MILL +$5.55 MILLION B. If Landis reduces the payout ratio, the company will retain more earningsand need less external funds. A slower growth rate means that less assets will have to be financed and in this case, less external funds would be needed. A declining profit margin will lower retained earnings and force Landis Corporation to seek more external funds C. Cash........... $ 5.75 Accounts Payable....... $17.25 Accounts Receivable..... 17.25 Accruals...... 11.50 Inventory...... 28.75 Notes Payable. 17.551 Net Fixed Assets............... 46.00 Long-Term Bonds 5.00 Common Stock.. 10.00 _____ Retained Earnings...... .............. 36.452 $97.75 $97.75 1 Original notes payable plus required new funds. This is the plug figure. 2 2009 retained earnings (beginning of 2009) + PS2 (1-D) or $33 mil + $3.45 mil The thing I need you to do for me, is to explain in detail how I get to the answers for problem C? I hope this makes more sense, if not, I can send it as an attachment.
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