bisan

[bisan]

BHS Inc. determines that sales will rise from $300,000 to $500,000 next year. Spontaneous assets are 70% of slaes and spontaneous liabilities are 30% of sales. BHS has a 10% profit margin and a 40% divident payout ratio. What is the level of requied new funds?

[CheekyChops]

�597.60

[factor-fiction]

Your style is a little rude I think and won't encourage AB readers to help you. I believe people learn best by trying their own homework, but I'll jot something down to set you thinking. How about this:

I've never heard of term spontaneous assets but I'll assume it's the additional assets needed to support sales volume.

Additional assets needed= 70% of $200,000=$140,000
Impact on liabilities= 30% of 200,000=$60,000

I guess you subtract (do you agree?) and get $80,000 net additional asets

net profit margin= 10% of �500,000= $50,000.
Dividend payout= 40% of $50,000= $20,000
So retained profit= $30,000

New funds needed= 80,000 less $30,000=$50,000.

If you have made any effort to look at lecture/course notes you'll be able to see whether this makes sense and whether I've left in any deliberate mistakes!

Have a go, put your suggested answer and workings on here and someone will be more inclined to help you.