[sgilder]

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:

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’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.

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).

[morgaine300]

Please the guidelines for posting homework in the red print at the top of this forum.

[sgilder]

Hi I have the answers but am unsure they are correct can I ask for someone to check me > for A I have
The additional external capital required should be 98 million for next year if sales increase 15%.
For B > If the company reduces the payout ratio the external fund requirements will also be reduced, but if the company
Grows at a slower rate then the company will also see a reduction in external funds, a decline in profit margin will
Show a reduction in all areas of the company.
And for C >

Balance Sheet
End of Year 2009
(in millions)
Assets
2008 2009
Cash 5 11
Accounts Receivable 15 33
Inventory 25 54
Plant and equipment 40 86


Total assets 85.00 183

Liabilities and Stockholders’ Equity
2008 2009
Accounts Payable 15 33
Accrued expenses 10 22
Notes Payable 12 24
Long Term Bonds 5 10
Common Stock 10 20
Retained Earnings 33 75
Total Liabilities and Stockholders' Equity85.00 183

[sgilder]

Hi I have the answers but am unsure they are correct can I ask for someone to check me > for A I have
The additional external capital required should be 98 million for next year if sales increase 15%.
For B > If the company reduces the payout ratio the external fund requirements will also be reduced, but if the company
Grows at a slower rate then the company will also see a reduction in external funds, a decline in profit margin will
Show a reduction in all areas of the company.
And for C >

Balance Sheet
End of Year 2009
(in millions)
Assets
2008 2009
Cash 5 11
Accounts Receivable 15 33
Inventory 25 54
Plant and equipment 40 86
Total assets 85.00 183

Liabilities and Stockholders’ Equity
2008 2009
Accounts Payable 15 33
Accrued expenses 10 22
Notes Payable 12 24
Long Term Bonds 5 10
Common Stock 10 20
Retained Earnings 33 75
Total Liabilities and Stockholders' Equity 85.00 183

[morgaine300]

Please avoid double-posting. It just confuses things. (Especially when you post your answers in a separate post than the problem - no one knows what you're referring to.) So I've moved this back over into the same thread with the rest.

Yes, we can check your homework but you have to wait for someone who can answer your specific question. Not everyone here does every different type of problem.