BHS Inc

Accounting Nov 28, 2020

BHS Inc. determines that sales will rise from $300,000 to $700,000 next year. Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BHS has a 10% profit margin and a 40% dividend payout ratio. What is the level of required new funds?

Expert Solution

Given

Increase in sales= 700000- 300000

= 400000

Required new funds = Increase in spontaneous assets - Increase in spontaneous liabilities- Increase in Retained earnings

= (400000* 70%)- (400000* 30%)- (700000*10%* (100%- 40%))

= 280000- 120000- 42000

= 118000

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