Hungry Howie's 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 9 percent. What is the external financing needed?
Projected total assets = $14,550 × 1.09 = $15,859.5
Projected accounts payable = $1,920 × 1.09 = $2,092.8 Projected retained earnings = $1,530 + ($1,670 × 1.09) = $3,350.3 External financing need = $15,859.5 - $2,092.8 - $3,600 - $7,500 - $3,350.3 = -$683.60 |
79.
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Hungry Howie's maintains a constant payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?
Internal growth = [($2,120/$14,550) × ($1,670/$2,120)]/{1 - [($2,120/$14,550) × ($1,670/$2,120)]} = 12.97 percent
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80.
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Hungry Howie's is currently operating at 96 percent of capacity. What is the required increase in fixed assets if sales are projected to increase by 14 percent?
Full-capacity sales = $17,300/.96 = $18,020.83
Required increase in fixed assets = ($10,850/$18,020.83) × ($17,300 × 1.14) - $10,850 = $1,024 |
81.
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The most recent financial statements for Watchtower, Inc. are shown here (assuming no income taxes):
 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $4,750. What is the amount of the external financing needed?
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