Tobin Supplies Company expects sales next year to be $490,000. Inventory and accounts receivable will increase $75,000 to accommodate this sales level. The company has a steady profit margin of 20 percent with a 50 percent dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
Tobin Supplies Company expects sales next year to be $490,000. Inventory and accounts receivable will increase $75,000 to accommodate this sales level. The company has a steady profit margin of 20 percent with a 50 percent dividend payout.
How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
When the sales grow in a business, it requires more funds to support the growth in sales. This may be by way of retained earnings or by way of external funds. Thus External funds required is computed as Increase in assets-Increase in spontaneous liabilities -Retained earnings.
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