Sunny Co. recently reported sales of P100 million, and net income of P10 million.  The firm has P80 million total assets. Next year, Sunny Co. is forecasting a 35% increase in sales. The firm also estimates that if sales increase by 35%, spontaneous liabilities will increase by P5 million. The dividend payout ratio is determined to be 30%.  If the sales increase, the profit margin will remain at its current level.  The company is at full capacity and assets must increase in direct proportion to sales.    1) How much is the increase in retained earnings? 2) using AFN, how much additional capital must the firm raise in order to support the forecasted percent increase in sales?

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...
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Sunny Co. recently reported sales of P100 million, and net income of P10 million.  The firm has P80 million total assets. Next year, Sunny Co. is forecasting a 35% increase in sales. The firm also estimates that if sales increase by 35%, spontaneous liabilities will increase by P5 million. The dividend payout ratio is determined to be 30%.  If the sales increase, the profit margin will remain at its current level.  The company is at full capacity and assets must increase in direct proportion to sales. 

 
1) How much is the increase in retained earnings?

2) using AFN, how much additional capital must the firm raise in order to support the forecasted percent increase in sales?

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