Owen\'s Electronics has nine operating plants in seven southwestern states. Sale
ID: 2813483 • Letter: O
Question
Owen's Electronics has nine operating plants in seven southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future) All assets (including fuxed assets) and current liabilities will vary directly with sales. The fem is working at ful capacity. 5 6 Accounts payable S 17 23 Accrued wages Gurrent assets Fleed assets Cument labines 41Notes payable 13 18 Common slock 96 Total labiies and stockholders' equity Owen's has an atertax prolit margin of 8 peroent and a dividend payout ratio of 40 percent If sales grow by 25 percent next year, determine how many dolars of new funds are needed to finance the growth. (Do not round intermediate calculations. Enter your answer in dollars, not millions, (eg 1,234,567) fundsExplanation / Answer
Additional Funds Needed(AFN)=Required Increase in Assets-Spontaneous Increase in Liabilities-Spontaneous Increase in Retained Earnings ie.AFN=(Total Assets(0)*g))-(Current Liab. (0)*g))-((Sales(0)*g)*PM%*Retention %)) ie.(96*25%)-(33*25%)-(100*1.25*8%*(1-40%))= 9.75 New Funds= $ 9750000 Verification (Fig. in Millions) Assets Liabilities Cash 6*1.25= 7.5 Accounts payable 17*1.25= 21.25 Accounts Receivable 23*1.25= 28.75 Accrued Wages 5*1.25= 6.25 Inventory 26*1.25= 32.5 Accrued Taxes 11*1.25= 13.75 Current Assets 55*1.25= 68.75 CurrentLiabilities 33*1.25= 41.25 Fixed assets 41*1.25= 51.25 Notes payable 13 Common stock 18 Retained Earnings 32+((100*1.25*8%*(1-40%))= 38 Total Assets 120 Total Liabilities 110.25 AFN=120-110.25= 9.75 120 120
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