Question

BHS Inc. determines that sales will rise from $300,000 to $500,000 next year. Assets are 70% of sales and liabilities are 30% of sales. BHS has a 10% profit margin and a 40% dividend payout ratio. What is the level of required new funds?

Answer 1

Answer:

PREVIOUS SALES = $300000

PREVIOUS ASSET ($300000 * 70%) = $210000

LESS PREVIOUS LIBALITY ($300000 * 30%) = ($90000)

PREVIOUS CAPITAL FUND = $120000

NEXT YEAR SALES = $500000

NEXT YEAR ASSETS ($500000 * 70%) = $350000

LESS NEXT YEAR LIBALITY ($500000 * 30%) = ($150000)

NEXT YEAR CAPITAL FUND = $200000

LESS PREVIOUS YEAR CAPITAL FUND = ($120000)

LESS RETAINED EARNING NEXT YEAR = ($30000)

NEW FUND REQUIRED = $50000

The level of required new funds is $50000