Ask Question
29 October, 15:44

he Steel Mill is currently operating at 84 percent of capacity. Annual sales are $28,400 and net income is $2,250. The firm has current liabilities of $2,700, long-term debt of $9,800, net fixed assets of $16,900, net working capital of $5,000, and owners' equity of $12,100. All costs and net working capital vary directly with sales. The tax rate and profit margin will remain constant. The dividend payout ratio is constant at 40 percent. How much additional debt is required if no new equity is raised and sales are projected to increase by 12 percent?

+5
Answers (1)
  1. 29 October, 15:49
    0
    -911.51 the debt will decrease if sales increase 12%

    Explanation:

    sales: 28,400

    increase of 12%

    new sales: 31,808

    profirt margin:

    2,250/28,400 = 0.0792 = 7.92%

    income: 31,808 x 7.92% = 2,519.19

    retained earnigns grow: (1-payout ratio) = 0.6

    2,519.19 x 60% = 1,511.514‬

    Increase in working capital: 5,000 x 12% = 600

    Asset requirement - reteined earnigns grow = financial needs

    600 - 1,511.51 = - 911.51
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “he Steel Mill is currently operating at 84 percent of capacity. Annual sales are $28,400 and net income is $2,250. The firm has current ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers