Estimating the need for external funds.

EFN Inc. is undergoing tremendous growth as a technology provider for work-from-home office setups. The board wants to estimate the financing needs for the year in order to secure it at the lowest cost possible. The sales are expected to rise by 80 percent this year from $120 million last year. Working capital requirement is 41 percent of sales. To increase production, new machinery has to be purchased which would require an investment of $20 million. The depreciation charge is expected to be $4 million.

The income this year is expected to increase 100 percent from $14 million last year. The firm has to pay out dividends because of the clientele effect, and payout would be 60 percent of the earnings. As a result of investment, cash has reduced by $6 million.