Owens Electronics has nine operating plants in seven southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales. The firm is working at full capacity.

Owens Electronics has an aftertax profit margin of 10 percent and a dividend payout ratio of 45 percent.

If sales grow by 20 percent next year, determine how many dollars of new funds are needed to finance the growth.

By how much must total assets increase in order to support the projected sales increase?

a.

126,000,000 = 105,000,000 x 1.20

b.

1,400,000 = (7,000,000 x 1.20) - 7,000,000

c.

12,000,000 = 60,000,000 x 0.20

d.

21,000,000 = (105,000,000 x 1.20) - 105,000,000

What is the total amount of current liabilities needed to support the 20% increase in sales?

a.

18,000,000 = 15,000,000 x 1.20

b.

40,000,000 = no growth needed in current liabilities

c.

60,000,000 = no growth needed in current assets

d.

48,000,000 = 40,000,000 x 1.20

What is the projected addition to retained earnings for next year?

a.

5,400,000 = 45% payout ratio x 12,000,000 projected profits

b.

6,000,000 = 30,000,000 retained earnings x 20% growth

c.

5,500,000 = 10,000,000 projected profits minus 4,500,000 projected dividends

d.

6,600,000 = 12,000,000 projected profits minus 5,400,000 projected dividends

Balance Sheet (in \$ millions) Assets Liabilities and Stockholders' Equity Cash $7 Accounts payable Accounts receivable 25 Accrued wages Inventory Current assets $6028 Accrued taxes ......... Fixed assets Notes payable Common stock Retained earnings Total liabilities and Total assets $105 stockholders' equity $105