Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 20 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown below: Assets Cash Account receivable Inventory Plant and equipment Total assets O Yes. O No Balance Sheet December 31, 20xx ($ millions) $10 40 63 130 $243 Liabilities and Shareholders' Equity Accounts payable Accrued expenses Other payables Common stock Retained earnings Total liabilities and equity Harvard's anticipates a large increase in the demand for tweed sport coats and deck shoes. A sales increase of 30 percent is forecast. 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 in the number of common shares outstanding is scheduled, and retained earnings will change as dictated by the profits and dividend policy of the firm. a. Will external financing be required for the Prep Shop during the coming year? $ $35 10 12 90 96 $243 b. What would the need for external financing be if the net profit margin went up to 25 percent and the dividend payout ratio was increased to 60 percent? (Enter the answer in millions. Round the final answer to 2 decimal places.) Required new funds million
Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 20 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown below: Assets Cash Account receivable Inventory Plant and equipment Total assets O Yes. O No Balance Sheet December 31, 20xx ($ millions) $10 40 63 130 $243 Liabilities and Shareholders' Equity Accounts payable Accrued expenses Other payables Common stock Retained earnings Total liabilities and equity Harvard's anticipates a large increase in the demand for tweed sport coats and deck shoes. A sales increase of 30 percent is forecast. 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 in the number of common shares outstanding is scheduled, and retained earnings will change as dictated by the profits and dividend policy of the firm. a. Will external financing be required for the Prep Shop during the coming year? $ $35 10 12 90 96 $243 b. What would the need for external financing be if the net profit margin went up to 25 percent and the dividend payout ratio was increased to 60 percent? (Enter the answer in millions. Round the final answer to 2 decimal places.) Required new funds million
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 20
percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown below:
Assets
Cash
Account receivable
Inventory
Plant and equipment
Total assets
O Yes.
O No
Balance Sheet
December 31, 20XX ($ millions)
$10
40
63
Required new funds
130
$243
Liabilities and Shareholders' Equity.
Accounts payable
Accrued expenses
Other payables
Common stock
Retained earnings
Total liabilities and equity
Harvard's anticipates a large increase in the demand for tweed sport coats and deck shoes. A sales increase of 30 percent is forecast.
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 in the number of common shares outstanding is scheduled, and retained earnings will change as
dictated by the profits and dividend policy of the firm.
a. Will external financing be required for the Prep Shop during the coming year?
$35
10
12
90
96
$243
b. What would the need for external financing be if the net profit margin went up to 25 percent and the dividend payout ratio was
increased to 60 percent? (Enter the answer in millions. Round the final answer to 2 decimal places.)
million
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