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bear corp. is creating pro torma tinancial statements tor ine upcoming year. Management assumes that all variables ( i . e . , revenue, costs,
bear corp. is creating pro torma tinancial statements tor ine upcoming year. Management assumes that all variables ie revenue, costs, income, assets, etc. will grow by a uniform percentage. Despite this, a discrepancy arises where debt plus equity does not sum to total assets under a payout ratio. The CFO proposes several potential strategies, but the team is divided on which approach would be most effective in balancing the financials while maintaining corporate strategy alignment. Consider the following options: i Pay a dividend such that the addition to retained earnings equals the assumed growth in equity. ii Increase their assumed retention ratio while retiring outstanding debt. iii. Increase their assumed payout ratio until the books balance. iv Retain all earnings and retire outstanding debt. v Increase their assumed retention ratio.
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