665 150 194 $ 341 Hungry Kids 2012 Balance Sheet 920 3,110 6,300 $ 7,700 $ 7,700

Question

665

150

194

$

341

Hungry Kids
2012 Balance Sheet

920    

3,110    

6,300    

$

7,700    

$

7,700    

   
Hungry Kids is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 5 percent. What is the external financing need?

$47

$39

$40

$48

$49

Hungry Kids
2012 Income Statement   Net sales $ 4,300   Cost of goods sold 2,950   Depreciation

665

  Earnings before interest and taxes $ 685   Interest paid

150

  Taxable Income $ 535   Taxes

194

  Net income

$

341

     Dividends $ 58      Addition to retained earnings $ 283

Explanation / Answer

External Financing Needed for full capacity = A0/S0*(S1-S0) - L0/S0(S1-S0)-PM(S1)b Profit Margin Ratio = 341/4300 7.93% Dividend Payout Ratio = 58/341 17.01% New Sales 4515 4300*105% External Financing needed 7700/4300*(4515-4300) - 960/4300*(4515-4300) - 7.93%*4515*(1-0.1701) 385 - 48 - 297 $39.00 External Fiancing needed = $ 39

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