Reference no: EM132934998

Question - Dopey, Inc., a national clothing chain had sales of P 300 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The statement of financial position for the end of last year is shown next.

Statement of Financial Position End of Year (P millions)

Assets Liabilities and Stockholders' Equity

Cash P20

Accounts payable P70

Accounts receivable 25

Accrued expenses 20

Inventory 75

Other payables 30

Plant and Equipment 120

Common stock 40

Retained Earnings 80

Total Liabilities stockholders equity and Total assets P240 P240

The company's marketing staff has told the president that in the coming years there will be large increase in the demand for coats and slacks. A sales increase of 15 percent is forecast for the company.

All statement of financial position items is expected to maintain the same percent-of-sales relationship as last year, except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding and retained earnings will change as dictated by the profits and dividend policy pf the company. (Remember the net profit margin is 8 percent).

Required -

a. Will external financing be required for the company during the coming year?

b. What would be the need for external financing of the net profit margin went up to 9.5 percent and dividend payout ratio were increase to 50% percent? Explain.