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    External (Additional) Funds Needed

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    The most recent financial statements for REM Co. are shown below:
    Income Statement
    Sales 400
    Costs 200
    Taxes 50
    Net Income 150

    Balance sheet
    Assets 1200
    Total 1200
    Debt 600
    Equity 600
    Total 1200
    Assets and costs are proportional to sales. Debt is not. A dividend of $90 was paid, and REM wishes to maintain a constant payout to net income. Next year's sales are projected to be $480. What is external funds need (EFN)?

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    Solution Preview

    The basis formula for external funds needed (also called "additional funds needed") is:

    EFN = ((Assets which rise ...

    Solution Summary

    This solution illustrates how to compute the external (additional) funds needed to fuel sales growth.