1. ____ A firm has revenue of $500K, and a profit margin of 10% for the current year. The balance sheet for the current year shows current assets of $100K, fixed assets of $300K, and current liabilities of $200K. The company does not have any long term debt. The company expects sales to grow by 10% next year. Using the assumptions below, what is the external financing needed for next year?
• Sales growth is 10%
• All expenses vary with sales
• All current assets grow with sales, but current liabilities do not grow with sales
• Fixed assets are at 100% utilization and thus require growth
• The company’s dividend payout ratio is 45.455%
a. $10K shortfall (EFN needed)
b. $10K surplus (excess cash available)
c. $40K of surplus (excess cash available)
d. $40K shortfall (EFN needed)
2. _____Based on the data in the problem above, the internal growth rate for this company would be __________.
a. 3.4%
b. 7.4%
c. 8.4%
d. 9.4%
e. None of the above
3. Determine the equity multiplier for a venture with the following financial information: net profit = $22,000; revenues = $132,000; return on assets 30%, total equity = $50,000, and long-term debt = $100,000.
a. .17
b. .20
c. 1.47
d. 1.8