15. How much external financing is needed for a 15% increase in sales? Assume as

Question

15. How much external financing is needed for a 15% increase in sales? Assume assets and costs vary directly with sales but no current liabilities increase with sales and that the dividend payout ratio remains fixed.

A) $0

B) $34.7 million

C) $53.6 million

D) $23.2 million

E) $27.6 million

Stansfield Corporation

Income Statement ($ in millions)

Sales $300

Costs 250 EBT $ 50 Taxes (34%) 17 Net income $ 33 Retained earnings $ 22 Dividends $ 11 Stansfield Corporation Balance Sheet ($ in millions) Cash $ 5 Accounts payable $ 40 Accounts receivables 40 Notes payable 30 Inventory 65 Current liabilities $ 70 Current assets $110 Long-term debt 155 Net plant & equip. 290 Common stock 75 Retained earnings 100 Total assets $400 Total liab. & equity $400

Explanation / Answer

Income Statement Current Proposed(Plus 20% increase in Sales) Sales 300 345 Cost 250 287.5 EBT 50 57.5 Taxes(34%) 17 19.55 Net Income 33 37.95 Retained Earning 22 25.3 Dividend 11 12.65 33.33333333 Balance Sheet Balance Sheet Proposed Cash 5 5.75 Accounts Receievable 40 46 Inventory 65 74.75 Current Assets 110 126.5 Plant 8 Machinery 290 333.5 400 460 Accounts Payable 40 40 Notes Payable 30 30 Current Liabilities 70 70 Long Term debt 155 189.7 (B.F) Common Stock 75 75 Retained Earning 100 175 125.3 200.3 400 460 Proposed Financing 189.7 Less: Long Term Receivable 155 Net Increase 34.7(i.e (B) )

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