Conn Man’s Shops, a national clothing chain, had sales of $370 million last year. The business has a steady net profit margin of 7 percent and a dividend payout ratio of 30 percent. The balance sheet for the end of last year is shown. Balance Sheet End of Year (in $ millions) Assets Liabilities and Stockholders' Equity Cash $ 27 Accounts payable $ 71 Accounts receivable 42 Accrued expenses 37 Inventory 84 Other payables 40 Plant and equipment 180 Common stock 54 Retained earnings 131 Total assets $ 333 Total liabilities and stockholders' equity $ 333 The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is forecast for the company. All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 7 percent.) *This includes fixed assets, since the firm is at full capacity. a. Will external financing be required for the company during the coming year? multiple choice No Yes b. What would be the need for external financing if the net profit margin went up to 7.50 percent and the dividend payout ratio was increased to 60 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions, (e.g., $1,234,567).)
Conn Man’s Shops, a national clothing chain, had sales of $370 million last year. The business has a steady net profit margin of 7 percent and a dividend payout ratio of 30 percent. The
| Balance Sheet End of Year (in $ millions) |
|||||
| Assets | Liabilities and |
||||
| Cash | $ | 27 | Accounts payable | $ | 71 |
| 42 | Accrued expenses | 37 | |||
| Inventory | 84 | Other payables | 40 | ||
| Plant and equipment | 180 | Common stock | 54 | ||
| 131 | |||||
| Total assets | $ | 333 | Total liabilities and stockholders' equity | $ | 333 |
The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is
All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 7 percent.)
*This includes fixed assets, since the firm is at full capacity.
a. Will external financing be required for the company during the coming year?
multiple choice
-
No
-
Yes
b. What would be the need for external financing if the net profit margin went up to 7.50 percent and the dividend payout ratio was increased to 60 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions, (e.g., $1,234,567).)
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