Reference no: EM131618774

A firm has the following balance sheet and statistics:

Cash               $10           A/P                           $   10

A/R                   10           N/P                                 20

Inventories        10           LTD                                 40

Fixed Assets     90           Comm. Stk.                     40

                                        R/E                                 10

Total Assets    $120         Total Liab.& Equity          120

All assets are being used at 100% capacity; sales for the year just ended were $200; sales will increase by $40 next year; the profit margin is 5% and the dividend payout ratio is 60% .

a) What are the external financial requirements for the next year?

b) Suppose fixed assets were only being used at 80 percent of capacity last year. That would the external financial requirement be next year?

c) Assuming full capacity again, what would be the total external financial requirements if sales growth were spread over two years instead of one, i.e.,if sales increased by 20 in each of the next two years rather than $40 next year?

d) Assuming full capacity and the same sales growth as in part (a), what would the external financing requirements be if the dividend payout ratio were reduced to 50%

e) Summarize the effects of capacity utilization, rate of growth, and dividend policy on external financing requirements in general.