Define the following: S = Previous years sales A = Total assets D = Total debt E
Question:
S = Previous year’s sales
A = Total assets
D = Total debt
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
Show that EFN can be written as:
EFN = –PM(S)b + [A – PM(S)b] × g
Asset needs will equal A × g . The addition to retained earnings will equal PM(S) b × (1 + g ).
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Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
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