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External (Additional) Funds Needed

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)?

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.