Calculation of Increase in Sales, Dividend Payout ratio.
Cranberry Corporation
Income Statement
($ in millions)
|
Sales
|
$300
|
|
Costs
|
250
|
|
EBT
|
$ 50
|
|
Taxes (34%)
|
17
|
|
Net income
|
$ 33
|
|
Retained earnings
|
$ 22
|
|
Dividends
|
$ 11
|
Cranberry Corporation
Balance Sheet ($ in millions)
|
Cash
|
$5
|
|
Accounts payable
|
$ 40
|
|
Accounts receivables
|
40
|
|
Notes payable
|
30
|
|
Inventory
|
65
|
|
Current liabilities
|
$ 70
|
|
Current assets
|
$110
|
|
Long-term debt
|
155
|
|
Net plant & equip.
|
290
|
|
Common stock
|
75
|
|
|
|
|
Retained earnings
|
100
|
|
Total assets
|
$400
|
|
Total liab. & equity
|
$400
|
a. Assuming a constant profit margin, what will Cranberry Corporation's net income be if sales increase by 10%?
b. What is Cranberry Corporation's addition to retained earnings with a 10% increase in sales? Assume the dividend payout ratio and profit margin remains fixed.
c. Assume Cranberry Corporation is operating at full capacity. What will total assets be if sales increase by 10%? Assume costs, current liabilities, and current assets vary directly with sales and that the dividend payout ratio remains unchanged.
d. Assume Cranberry Corporation is using its fixed assets at 90% capacity. Assume costs, current liabilities, and current assets vary directly with sales, and that the dividend payout ratio remains unchanged. If sales increase by 20%, what will total fixed assets be?
e. How much external financing is needed for a 20% increase in sales if the Corporation is currently operating at full capacity? Assume assets and costs vary directly with sales but no current liabilities increase with sales and that the dividend payout ratio remains fixed.