Question

Assuming Dell sales will grow 50% in 1997, how might the company fund this growth internally?

Answer 1

Dell can fund this growth internally by:

• The $469 million increase in current liabilities serves as a source of funds.
• The estimated increase in net profits to $395 million is approximately $123 million.
• The short-term investment is assumed to be the same as in 1996, namely $591 million.

What is funding?

• Business financing is a funding option that allows business owners to obtain business loans to cover expenses such as temporary cash flow interruptions, expansion projects, stock and equipment, and seasonal spikes in activity.
• Retained earnings, debt capital, and equity funding are the three major sources of corporate financing.

So, according to the given chart:

• As a result, an additional operating asset of $794 million is required to sustain growth.
• The $469 million increase in current liabilities serves as a source of funds.
• The estimated increase in net profits to $395 million is approximately $123 million.
• The short-term investment is assumed to be the same as in 1996, namely $591 million.
• As a result, we can confidently predict that growth will be funded internally.

Therefore, Dell can fund this growth internally by:

• The $469 million increase in current liabilities serves as a source of funds.
• The estimated increase in net profits to $395 million is approximately $123 million.
• The short-term investment is assumed to be the same as in 1996, namely $591 million.

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