Question
In: Finance
Jason Company's balance sheet last year was the followingamounts as of December 31st: Cash $10...
Jason Company's balance sheet last year was the following amounts as of December 31st: Cash $10 Accounts payable $15 Accounts receivable 40 Accruals 5 Inventory 50 Short-term debt 20 Net property plant 100 Long-term debt 20 Common stock 20 Retained earnings 120 Total assets $200 Total liabilities and equity $200 Last year the firm's sales were $2,000, and it had a profit margin of 10 percent and a dividend payout ratio of 60 percent. Baxter operated its property plant at full capacity. The company expects to increase its net sales by 37.5 percent, to $2,750, but the profit margin is expected to fall to 2 percent, and the retained earnings ratio is expected to rise to 55 percent. What is Jason's additional funds needed (AFN) for this year?
Solutions
Expert Solution
AFN = Increase in sales - increase in spontaneous Liabilities - Addition to Retained earnings
1. Increase in Assets = Total assets * Sales Growth = 200 * 0.375 = $75
2. Increase in Spontaneous Liabilities = (accounts Payable + Accruals) * Sales Growth = 20 * 0.375 = $7.50
* Short term debt doesn't changes with growth of sales
3. Addition to retained earnings = New Sales * Profit margin * Retained Earning ratio
Addition to retained earnings = 2750 * 2% * 55%
Addition to retained earnings = $30.25
Thus,
AFN = Increase in sales - increase in spontaneous Liabilities - Addition to Retained earnings
AFN = 75 - 7.50 - 30.25
AFN = $37.25
jeff jeffy answered 2 years agoRelated Solutions
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