Tobin Supplies Company expects sales next year to be $500,000. Inventory and accounts receivable will increase by $90,000 to accommodate this sales level. The company has a steady profit margin of 12 percent with a 40 percent dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
6-2. Solution:
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Tobin Supplies Company
$xxx, xxx Sales
×0.12 Profit margin
xx, xxx Net income
– xx, xxx Dividends (40%)
$ xx, xxx Increase in retained earnings
$ xx, xxx Increase in assets
– xx, xxx Increase in retained earnings
$ xx, xxx External funds needed
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