Question

Galehouse Gas Stations Inc. expects sales to increase from $1,510,000 to $1,710,000 next year. Galehouse believes that net assets (Assets - Liabilities) will represent 30 percent of sales. His firm has an 8 percent return on sales and pays 45 percent of profits out as dividends. a. What effect will this growth have on funds? The cash balance will 1 increase by decrease by b. If the dividend payout is only 30 percent, what effect will this growth have on funds? The cash balance will

Answer 1

Answers a) The cash balance will increase by $15,240 b) The cash balance will increase by $35,760 Explanation Amount it) Asset buildup ($1,710,000-$1,510,000) $60,000) * 30:1 profit ($11110,000 78%) $ 136,800 Dividenas ($136,800x45%) $(61,560) Cash in change $15,240 . The cash balance will increase by $15,240 b) Dividends would only be $41,000 ($136,800X30%) Asset Build up $160,000) Profit $ 136,800 Dividends $Culiono) cash in Change $35,760 The cash balance will increase by $35,560

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