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Problem 6-4 External financing (L06-1) Antivirus Inc
Problem 6-4 External financing (L06-1) Antivirus Inc. expects its sales next year to be $2,200,000. Inventory and accounts receivable will increase by $450,000 to accommodate this sales level. The company has a steady profit margin of 9 percent with a 20 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing External funds needed
Expert Solution
| Change in retained earnings = Next year sales * Profit margin * ( 1 - Dividend payout ratio) |
| Change in retained earnings = 2200000 * 9% * (1 - 20%) |
| Change in retained earnings = 158400 |
| EFN = Increase in assets - Change in retained earnings |
| EFN = 450,000 - 158,400 |
| EFN = 291,600 |
| Answer : 291,600 |
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