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New Funds Needed for an Expansion for Carter Paint Company

Carter Paint Company has plants in nine Midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales.

BALANCE SHEET
(in $ millions)
Assets Liabilities and Stockholders' Equity
Cash $ 5 Accounts payable $15
Accounts receivable 15 Accrued wages 6
Inventory 30 Accrued taxes 4
Current assets 50 Current liabilities 25
Fixed assets 40 Notes payable 30
Common stock 15
Retained earnings 20
Total assets $90 Total liabilities and stockholders' equity $90

Carter Paint has an after-tax profit margin of 5 percent and a dividend payout ratio of 30 percent. If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Assume Carter Paint is already using assets at full capacity and that plant must be added.)

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Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million,
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4-22. Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this ...

$2.19