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new funds required to finance the growth

Owen's Electronics has 90 operating plants in seven southwestern 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2
Accounts payable . . . . . . . . . . . . . . . . $15
Accounts receivable . . . . . . . . . . . . . . . 20
Accrued wages . . . . . . . . . . . . . . . . . . 2
Inventory . . . . . . . . . . . . . . . . . . . . . . . 23
Accrued taxes . . . . . . . . . . . . . . . . . . . 8
Current assets . . . . . . . . . . . . . . . . . . . $45
Current liabilities . . . . . . . . . . . . . . . $25
Fixed assets . . . . . . . . . . . . . . . . . . . . . 40
Notes payable . . . . . . . . . . . . . . . . . . . 10
Common stock . . . . . . . . . . . . . . . . . . 15
Retained earnings . . . . . . . . . . . . . . . . 35
Total liabilities and Total assets . . . . . . . . . . . . . . . . . . . . . $85
stockholders' equity . . . . . . . . . . . . . $85

Owen's has an after-tax profit mar gin of 7 percent and a dividend payout ratio
of 40 percent. If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the growth.

Solution Preview

Owen's Electronics has 90 operating plants in seven southwestern 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 $ ...

Solution Summary

Computation of new funds required to finance the growth

$2.19