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bisan
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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?
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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.
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.
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