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Mrac [35]
3 years ago
10

Antivirus Inc. expects its sales next year to be $2,500,000. Inventory and accounts receivable will increase $480,000 to accommo

date this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
Business
1 answer:
DiKsa [7]3 years ago
8 0

Answer:

$236,250

Explanation:

The computation of external financing is shown below:-

For computing the external financing first we need to find out the retained earning which is shown below:-

Net income = Sales × Profit margin

= $2,500,000 × 15%

= $375,000

Increase in retained earning = Net income - Dividends

= $375,000 - ($375,000 × 35%)

= $375,000 - $131,250

= $243,750

External financing = Increase in assets - Increase in retained earning

= $480,000 - $243,750

= $236,250

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Denna Company's working capital accounts at the beginning of the year follow:
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