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 fixed assets) and current liabilities will vary directly with sales. The firm is working at full capacity. Balance Sheet(in $ millions)AssetsLiabilities and Stockholders' EquityCash$7Accounts payable$20Accounts receivable 25Accrued wages 7Inventory 28Accrued taxes 13Current assets$60Current liabilities$40Fixed assets 45Notes payable 15 Common stock 20 Retained earnings 30Total assets$105Total liabilities and stockholders' equity$105 Owen’s Electronics has an aftertax profit margin of 10 percent and a dividend payout ratio of 45 percent. If sales grow by 20 percent next year, determine how many dollars of new funds are needed to finance the growth.

The formula to compute required fund needed as follows:

Answered: Owen’s Electronics has nine operating…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 1PROB

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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 fixed assets) and current liabilities will vary directly with sales. The firm is working at full capacity.

Balance Sheet (in $ millions)
Assets	Liabilities and Stockholders' Equity
Cash	$	7	Accounts payable	$	20
Accounts receivable		25	Accrued wages		7
Inventory		28	Accrued taxes		13
Current assets	$	60	Current liabilities	$	40
Fixed assets		45	Notes payable		15
			Common stock		20
			Retained earnings		30
Total assets	$	105	Total liabilities and stockholders' equity	$	105

Owen’s Electronics has an aftertax profit margin of 10 percent and a dividend payout ratio of 45 percent.

If sales grow by 20 percent next year, determine how many dollars of new funds are needed to finance the growth.

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