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Additional Funds Needed

Galehouse Gas Stations, Inc. expects sales to increase from $1,500,000 to $1,700,000 next year. Mr. Galehouse believes that net assets (assets - liabilities) will represent 70% of sales. His firm has a 10% return on sales and pays 40% of profits out as dividends.

1. What effect will this growth have on funds?
2. If the dividend payout is only 15%, what effect will this growth have on funds?

Solution Preview

Galehouse Gas Stations, Inc. expects sales to increase from $1,500,000 to $1,700,000 next year. Mr. Galehouse believes that net assets (assets - liabilities) will represent 70% of sales. His firm has a 10% return on sales and pays 40% of profits out as dividends.

1. What effect will this growth have on funds?

Assuming that all ...

Solution Summary

This solution illustrates how to compute the additional funds needed under different circumstances.

$2.19