Question 1: Southern Machines has a net income this year of $500 on sales of $2,000 and is operating its fixed assets at full capacity. Management expects sales to increase by 25 percent next year and is forecasting a dividend payout ratio of 30 percent. The profit margin is not expected to change. If spontaneous liabilities are $500 this year and no excess funds are expected next year, what are Southern's total assets this year?
Question 2: The 2007 balance sheet for Tree Hauling Company is shown below (in millions of dollars):
Cash______________$3.0___________Accounts Payable_____________$2.0
Accounts Receivable_3.0____________Notes Payable_________________1.5
Inventory__________ 5.0
CURRENT ASSETS _$11.0____________CURRENT LIABILITIES__________$3.5
Fixed Assets________3.0____________Long-Term Debt _______________3.0
_________________________________Common Equity________________7.5
TOTAL ASSETS____$14.0____________TOTAL LIABILITIES & EQUITY__ $14.0
In 2007, sales were $60 million. In 2008, management believes that sales will increase by 20 percent to a total of $72 million. The profit margin is expected to be 5 percent, and the dividend payout ratio is targeted at 40 percent. No excess capacity exists. What is the additional financing requirements (in millions) for 2008 using the formula method?
Question 3: Refer to Problem above. How much can sales grow above the 2007 level of $60 million without requiring additional funds?