Question

The Broom Maker currently has annual sales of $387,000 and is operating at 88 percent of capacity. The profit margin of 5.5 percent and the dividend payout ratio of 30 percent are projected to remain constant. What is the projected addition to retained earnings for next year based on a sales growth rate of 4.8 percent?

Answer 1

Answer: $15,614.68

Explanation:

Sales are projected to grow by 4.8% the next year.

= 387,000 * ( 1 + 4.8%)

= $405,576

The Projected addition to Retained Earnings = Expected Sales * Profit Margin * Retention ratio ( amount that is not paid as Dividend)

= 405,576 * 0.055 * ( 1 - 0.3)

= $15,614.68