Tobin Supplies Company expects sales next year to be $440,000. Inventory and accounts receivable will increase $85,000 t...
Tobin Supplies Company expects sales next year to be $440,000. Inventory and accounts receivable will increase $85,000 to accommodate this sales level. The company has a steady profit margin of 30 percent with a 45 percent dividend payout.
How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
External funds needed =
Homework Answers
Net income = Sales * Profit margin = $440,000 * 0.30 = $132,000
Increase in retained earnings = Net income - Dividends = $132,000 - ($132,000 * 0.45) = $72,600
External funds needed = Increase in assets - Increase in retained earnings = $85,000 - $72,600 = $12,400
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