Question: Firm QTP currently has sales of $10.5 million with an asset base of $25 million. QTP has no accounts payable, a net profit margin of 10%, and a dividend payout ratio of 60%.
1. If QTP decides to increase sales by 21 %, how much external funds required (EFR) are necessary? Round your answer to two decimal places. $ million
2. Assuming QTP now has accounts payable of $0.5 million, what is the EFR? Round your answer to two decimal places. $ million
3. In addition to having these accounts payable, QTP decides to cut its dividend, making the dividend payout ratio equal to 45%. What then is the associated EFR? Round your answer to two decimal places. $ million
4. Based on the signaling model of dividends, should QTP increase or decrease the dividend to indicate its new plan to sales expansion?