Question

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Galehouse Gas Stations Inc. expects sales to increase from $1,710,000 to $1,910,000 next year. Galehouse believes that net assets (Assets - Liabilities) will represent 45 percent of sales. His firm has an 8 percent return on sales and pays 20 percent of profits out as dividends. a. What effect will this growth have on funds? The cash balance will b. If the dividend payout is only 15 percent, what effect will this growth have on funds? The cash balance will Prey 1 of 5 Next >

Answer 1

Given, Previous Sales Expected Sales Net Asset to Sales Rate of Return On Sales Dividend Payout $1,710,000 $1,910,000 45% 8% 20% Solution a. Particulars Asset Buildup Amount Notes = (Expected sales - Previos sales) * Net Asset to Sales -$90,000 = ($1,710,000 - $1,910,000) * 45% = (Expected Sales * Rate of Return on Sales) $152,800 = ($1,910,000 * 8%) = (Profit Earn * Dividend Payout) $30,560 = $152,800 * 20% Profit Earn Dividend Change in Cash Balance $32,240 Answer a. The Cash balance will increase by $32,240 Solution b. Particulars * Asset Buildup Amount Notes = (Expected sales - Previos sales) * Net Asset to Sales -$90,000 = ($1,710,000 - $1,910,000) * 45% = (Expected Sales * Rate of Return on Sales) $152,800 = ($1,910,000 * 8%) = (Profit Earn * Dividend Payout) $22,920 = $152,800 * 15% Profit Earn Dividend Change in Cash Balance $85,720 Answer b. The Cash balance will increase by $85,720

Schedule J. Lo's Clothiers September October November December Remarks $61,000 $51,000 $46,000 $71,000 Given in problem Credit Sales In month of Sales $17,850 $16,100 One month after sales Total Cash Receipts $24,850 35% of Credit Sales collected in month of Sales 65% of previous month collected in respective month, $29,900 such as 65% of $61,000 will receive in october month $54,750 Total of In month of Sales & One month after sales $39,650 $57,500 $33,150 $49,250