EFN [LO2] Define the following:
S = Previous year’s sales
A = Total assets
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
Show that EFN can be written as follows:
EFN = -PM(S)b +(A - PM(S)b) × g
Hint: Asset needs will equal A × g. The addition to retained earnings will equal PM(S)b × (1+g).
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