Answer choices: $120$130$42$55$-92 BlueStem is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended.Based on the percentage of sales method, estimate the funding requirement (if any) for BlueStem in the coming year if it increased the payout from 10% to the new and higher level. All dollars are in millions.- Last year's sales $ S_0 $: $300.00- Sales growth rate $ g $: 40%- Last year's total assets $ A_0 $: $500.00- Last year's profit margin $ M $: 20.00%- Last year's accounts payable: $50.00- Last year's notes payable (to bank): $15.00- Last year's accruals: $20.00- Initial payout ratio: 10.00%- New payout ratio: 50.00%

Answered: BlueStem is planning its operations for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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$120

$130

$42

$55

$-92

BlueStem is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended.

Based on the percentage of sales method, estimate the funding requirement (if any) for BlueStem in the coming year if it increased the payout from 10% to the new and higher level. All dollars are in millions.

- Last year's sales $ S_0 $: $300.00
- Sales growth rate $ g $: 40%
- Last year's total assets $ A_0 $: $500.00
- Last year's profit margin $ M $: 20.00%
- Last year's accounts payable: $50.00
- Last year's notes payable (to bank): $15.00
- Last year's accruals: $20.00
- Initial payout ratio: 10.00%
- New payout ratio: 50.00%

Expert Solution

Step 1

SOLUTION:-

AFN = projected increase in assets – spontaneous increase in liabilities – increase in retained earnings
The company is at full capacity, so assets must grow at the same rate as projected sales: $500*1.4=$700, projected increase in assets = $700 - $500 = $200
Total sales = $300 *1.4 = $420
spontaneous increase in liabilities = X, 20/500 = X/700 => X = 28
For payout ratio = 10%:
Increase in Retained earnings = Net Income = 420 X 20% = 84, Dividend = 10% = 84X10%=8.4.
Increase in retained earnings = 84-8.4 = 75.6
AFN = $200 – $28 – $75.6 = $96.4 million