Pro Forma Assignment

Pro Forma Assignment - dividends Jet Corp would then...

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Cathy Bandelow FIN 200 a. How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity). Increase in sales = 15% of $100 million = $15 million Increase in Assets to sales = 5%+15%+25%+40% = 85% of $15 million = $12.75 million Increase in Liabilities to sales = 15%+10% = 25% of $15 million = $3.75 million Profit = 6% of $115 million = $6.9 million (profit margin is 6%) Dividend Payment = 50% o $6.9 million = $3.45 million Retained earnings = $3.35 milion (this $ amount the company does not require as additional captia Required additional capital = increase in Assets - increase in Liabilities - retained earnings = $12.75 million - $3.75 million - $3.45 million = $5.55 million b. What will happen to external fund requirements if Jet Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin? Discuss each of these separately If Jet Corp reduces the payout ratio for dividends, Jet would make more earnings and payout less
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Unformatted text preview: dividends. Jet Corp would then require less external funding. If Jet Corp grows at a slower rate, less assets will be the result and less external funding would the be required. If Jet Corp suffers a decline in its profit margin, the company will have less profit which will result in less retained earnings. An increase in external funds will be required. Balance Sheet Jet Corporation as of December 31 2008 Asset Amount (InLiabilities Amount (In Millions) Cash 5.75 Account Payable 17.25 Account Receivable 17.25 Accruals 11.5 Inventory 28.75 Long Term Bond 5 Net Fixed Asset 46 Notes Payable 17.55 Common Stock 10 Retained Earnings 36.45 Total Asset 97.75 Total Liabilities 97.75 PercentageSales Amount 5.00% 115 5.75 15.00% 115 17.25 25.00% 115 28.75 40.00% 115 46 Total Asse 97.75 15.00% 115 17.25 10.00% 115 11.5 5 10 17.55 36.45 Total Liab. 97.75 ial) in en in...
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This note was uploaded on 01/19/2011 for the course FIN 200 taught by Professor Williams during the Fall '08 term at University of Phoenix.

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Pro Forma Assignment - dividends Jet Corp would then...

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