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Part One: External Funding Requirement
Your company, Martin Industries, Inc., has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25% by spending $5,000,000 for an additional building.
The firm would like to maintain its 40% debt to total asset ratio in its capital structure and its dividend payout ratio of 50% of net income. Last year, net income was $2,500,000.
Required
Part Two: The Degree of Leverage
Assume that two companies, Brake, Inc. and Carbo, Inc., have the following operating results:
Brake, Inc.
Carbo, Inc.
Sales
$300,000
Variable Costs
60,000
180,000
Fixed Costs
210,000
90,000
Operating Income
$30,000
Greene Sisters has a DSO of twenty days. The corporations average daily sales are 20,000. Determine the level of Greene Sisters account receivable suppose there 365 days in year.
While most financial professionals are very comfortable with the textbook computation, there are a few gray areas worthy of note because of their potential impact on capital budgeting decisions.
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