7/22/2019 Foundations of Financial Management by Block, Hirt, Danielsen 4- 26, 27

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4-26. Solution:

Jordan Aluminum Supplies

Earnings after taxes $30,000Profit margin = 10%Sales $300,000

Dividends $18,000Payout ratio = 60%

Earnings 30,000

Change in Sales = 20% $300,000 = $60,000

Spontaneous Assets = Current Asserts = Cash + Acc. Rec. +Inventory

Spontaneous Liabilities = Acc. Payable + Accr. Wages + Accr.Taxes

2

A LRNF= S S PS 1 D

S S

$90,000 $12,000= $60,000 $60,000 .10 $360,000 1 .60

$300,000 $300,000

=.30 $60,000 .04 $60,000 .10 $360,000 .4

=$18,000 $2,400 $14,400

RNF = $1,200

The firm needs $1,200 in external funds.

7/22/2019 Foundations of Financial Management by Block, Hirt, Danielsen 4- 26, 27

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4-27. Solution:

Cambridge Prep Shops

a. 2A L

Required New Funds = S S PS 1 DS S

S = 15% $200,000,000 $30,000,000

150 60RNF $30,000,000 $30, 000, 000

200 200

.12 $230,000,000 1 .4

.75 $30,000,000 .30 $30,000,000

.12 $230,000,000 .6

$22,500,000 $9,000,000 $16,560,000

RNF = $3,060,000

A negative figure for required new funds indicates that anexcess of funds ($3.06 mil.) is available for new investment.No external funds are needed.