Cart Mowers Bhd. manufactures lawn mowers. It had Profit after tax of $150 million on revenues of $500 million last year, after depreciation charges of $100 million. Capital expenditures last year amounted to $160 million and total non-cash working capital was $100 million. The firm had a cash balance of $150 million and paid 50% of its earnings as dividends last year. There is no debt outstanding.

1. Assuming that revenues, capital expenditures and depreciation grow at 10% a year and that net income grows at 12% a year for the next four years, and that the non-cash working capital as a percent of revenues does not change over this period, estimate the cash balance at the end of year 4,if the company maintains its current payout ratio and borrows no money .
2. What proportion of earnings will Cart Mowers have to pay out as dividends if the firm wants to preserve its existing cash balance of $150 million at the end of 4 years? (5 marks)
3. Assuming that Cart Mowers does not want to issue new share and wants to maintain its existing payout ratio of 50% what debt ratio will the firm have to utilize over the next four years, to have a cash balance of $300 million at the end of the fourth year. (5 marks)