Additional Funds Needed
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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?
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This solution illustrates how to compute the additional funds needed under different circumstances.
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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 ...
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