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Bezzdna [24]
3 years ago
8

he Steel Mill is currently operating at 84 percent of capacity. Annual sales are $28,400 and net income is $2,250. The firm has

current liabilities of $2,700, long-term debt of $9,800, net fixed assets of $16,900, net working capital of $5,000, and owners' equity of $12,100. All costs and net working capital vary directly with sales. The tax rate and profit margin will remain constant. The dividend payout ratio is constant at 40 percent. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent?
Business
1 answer:
nignag [31]3 years ago
8 0

Answer:

-911.51 the debt will decrease if sales increase 12%

Explanation:

sales: 28,400

increase of 12%

new sales:  31,808

<em><u>profirt margin:</u></em>

2,250/28,400 = 0.0792 = 7.92%

income: 31,808 x 7.92% = 2,519.19

retained earnigns grow: (1-payout ratio) = 0.6

2,519.19 x 60% =  1,511.514‬

Increase in working capital: 5,000 x 12% = 600

Asset requirement - reteined earnigns grow = financial needs

600 - 1,511.51 = -911.51

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