Question
Lafayette Oil Company has annual sales of $ 50 million. Lafayette estimates that an additional dollar of sales requires an investment of $ 1.25 and
Lafayette Oil Company has annual sales of $ 50 million. Lafayette estimates that an additional dollar of sales requires an investment of $ 1.25 and generates a spontaneous short-term financing of $ 0.15. Lafayette has a profit margin of 8% net and expect to pay dividends equivalent to 25% of net income.
a) The financing is needed if Lafayette plans to increase its sales by 10% next year? b) How fast you can grow internally Lafayette if you want to finance all its growth? c) Suppose Lafayette meet additional long-term equal to 60% of additional capital debt. How much additional funding is needed now, if Lafayette grew by 10%? d) How fast you can grow Lafayette if you want to finance growth internally and with additional debt equal to 60% of the equity?
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