BUS 225 DAYONE LL
17th Edition
ISBN: 9781264116430
Author: BLOCK
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 4, Problem 3P
Galehouse Gas Stations Inc. expects sales to increase from
a. What effect will this growth have on funds?
b. If the dividend payout is only 25 percent, what effect will this growth have on funds?
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Galehouse Gas Station Inc. expects sales to increase from$1,550,000 to $1750,000 next year. Galehouse believes that net assets ( Assets - Liabilities) will represent 50 mpercent of sales. His firm has an 8 percent return on sales and pays 45 percent of profits out as dividens.
A. What effect will this growth have on funds?
B. If the dividen payout is only 25 percent, what effect will this growth have on the funds?
Suppose that TV Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $5 million. The firm also has a profit margin of 15 percent, a retention ratio of 25 percent, and expects sales of $5.5 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?
Assets
Liabilities and Equity
Current assets
$
1,000,000
Current liabilities
$
1,000,000
Fixed assets
2,000,000
Long-term debt
1,000,000
Equity
1,000,000
Total assets
$
3,000,000
Total liabilities and equity
$
3,000,000
Suppose MMC Industries has calculated its external funds needed (EFN) to be $23,000,000, but now management is considering raising the previously assumed dividend payout ratio from 35% to 40%. If the payout ratio is increased, what will happen to EFN?
Chapter 4 Solutions
BUS 225 DAYONE LL
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