Question

Maple Company has total assets of $1,230,000, long-term debt of $300,000, stockholders' equity of $600,000, and current liabilities of $330,000. The dividend payout ratio is 40 percent and the profit margin is 12 percent. Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity. What is the external financing need if the current sales of $1,500,000 are projected to increase by 15 percent?

		$10,800.00
		$14,500.00
		$17,600.00
		$20,400.00
		$8,400.00

Answer 1

-Calculating the External financial Needed using EFN formula:-

EFN = (Total assets of Current year)*(% increase in Sales) - (Spontaneous Liabilities of Current year)*(% increase in Sales) - [Total sales of Current year*(1+% increase in sales)]*Profit Margin*(1-Dividend payout ratio)

where, Total assets of Current year= $1230,000

% increase in Sales =15%

Spontaneous Liabilities of Current year = $330,000

Total sales of Current year = $1500,000

Dividend payout ratio = 40%

Profit Margin = 12%

EFN = ($1230,000)*(15%) - ($330,000)(15%) - [$1500,000*(1+0.15)*12%*(1-0.40)]

EFN = $184,500 - $49,500 - $124,200

EFN = $10,800

So, the external financing need is $10,800

Option 1