[kaleishanetony3]

Firm is expecting 20% sales increase without any expansion for fixed assets, but rather through more efficient asset utilization in existing store. Only current liabilities vary directly with sales.

Use percent-of-sales method to determine whether company has external financing needs or a surplus of funds. (Profit margin and payout ratio must be found from income statement) All amounts below are in dollars ($)

Income statement: Sales 200,000
Expenses 158,000
Pre-tax and interest Earnings 42,000
Interest 7,000
Pre-tax Earning 35,000
taxes 15,000
After-tax Earnings 20,000
Dividends 6,000

Balance sheet:
Assests Liabilities/Stockholders Equity
Cash 5,000 Accounts payable 25,000
Accts Rec 40,000 Accrued wages 1,000
Inventory 75,000 Accrued taxes 2,000
Current 120,000 current liablitites 28,000
Fixed asst 80,000 notes payable 7,000
long-term debt 15,000
common stock 120,000
retained earnings 30,000

total assests 200,000 total liabilities/stockholder equity
200,000


Answer:

(RNF)= Percentage relationship to vaiable assests to sales (60%) * Change in sales ($40,000.00)
-Percentage relationship of variable liabilities to sales (14%) * Change in sales ($40,000.00)
-Profit Margin * New Sales level ($240,000.00) * (1- Dividend payout ratio [.3])




60% ($40,000.00) – 14% ($40,000.00) – 10% ($240,000.00) (1-.3)

$24,000.00 - $5,600.00 - $16,800.00

$18,400.00-$16,800.00

$1,600.00

The firm has a deficit of $1,600.00.