Question:
The landy Corporation had 2005 sales of P100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: Cash 5%, Accounts Receivable 15%, Inventory 20%, Net fixed Assets 40%, Accounts payable 15%, Accruals 10%, Profit margins after taxes 6% The dividend payout ratio is 50% of earnings, and the balance in retained earnings at the beginning of the year 2005 was P33 million. Common Stock and the companys long-term bonds are constant at P10 million and P5million respectively. Notes payable are currently P12 million. QUESTION: 1.) How much additional external capital will be required for next year if sales increase 15%? (Assume that the company is already operating at full capacity. 2.) How much additional external capital will be required if Landy reduces the payout ratio to 30%? 3.) How much additional external capital will be required if sales increase by only 8%? PLEASE HELP!
this is more of a finance problem. i forgot the equation, but you could just set up a pro-forma balance sheet, and compare the aseet with liability and equity. the difference is external financial need. (read your textbook and do your own homework!)
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