Galehouse Gas Stations Inc. expects sales to increase from $1,560,000 to $1,760,

Question

Galehouse Gas Stations Inc. expects sales to increase from $1,560,000 to $1,760,000 next year. Galehouse believes that net assets (Assets Liabilities) will represent 55 percent of sales. His firm has an 7 percent return on sales and pays 35 percent of profits out as dividends.
  
a. What effect will this growth have on funds?

The cash balance will (decrease by or increase by?) b. __________

c. If the dividend payout is only 10 percent, what effect will this growth have on funds?

The cash balance will (decrease by or increase by?) d. ___________

Explanation / Answer

1.

Asset buildup increase by =(1760000-1560000)*55%=110000

Income =(1760000)*7%=123200

Dividend paid =123200*35%=43120

Change in Cash=-110000+123200-43120=-29920

Cash balance will decrease by $29920

2.

Asset buildup increase by =(1760000-1560000)*55%=110000

Income =(1760000)*7%=123200

Dividend paid =123200*10%=12320

Change in Cash=-110000+123200-12320=880

Cash balance will increase by $880

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