Question:Prep, Shoes a national shoe store chain, had sales of $200 million last year. The business has net profit after tax of $20 million and a dividend payout ratio of 50 percent. The balance sheet for the end of last year is shown below:
December 31, 2015 ($ millions)
Assets Liabilities and shareholders' Equity
Cash $7 Accounts Payable $55
Accounts receivable 28 Accrued Expenses 15
Inventory 60 Other payables 20
Plant and equipment 115 Common Stock 30
Total Assets $210 Retained earnings 90
Total Liabilities and Equity $210
Harvard's anticipates a sales increase of 30 percent next year due to new products.
All balance sheet items are expected to maintain the same percent of scale relationships as last year, expect for plant and equipment, common stock and retained earnings. No change in the common shares outstanding is scheduled, and retained earnings will change as directed by the profits and divided policy of the firm. Using the percent of sales approach,
a. What will be increase in retained earnings next year?
b. Will external financing be required for the prep Shop during the coming year? Show all calculations.
If days in A/R Decrease by 5 days what effect will this have on financing needs
a. New Sales = Old sales * (1 + Forecast Increase) New Sales = $200m * (1 + 30%) New Sales = $200m + 60m New... View the full answer