Problem 4-29 (Algo) Percent-of-sales method [LO4-3]

Conn Mans Shops, a national clothing chain, had sales of $310 million last year. The business has a steady net profit margin of 5 percent and a dividend payout ratio of 20 percent. The balance sheet for the end of last year is shown.

Balance Sheet End of Year (in $ millions)
Assets		Liabilities and Stockholders' Equity
Cash	$ 21	Accounts payable	$ 81
Accounts receivable	26	Accrued expenses	31
Inventory	66	Other payables	43
Plant and equipment	$ 104	Common stock	42
		Retained earnings	20
Total assets	$ 217	Total liabilities and stockholders' equity	$ 217

The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is forecast for the company.

All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 5 percent.)

*This includes fixed assets, since the firm is at full capacity.

Will external financing be required for the company during the coming year?

multiple choice

No

Yes

What would be the need for external financing if the net profit margin went up to 6.50 percent and the dividend payout ratio was increased to 70 percent?

Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions, (e.g., $1,234,567). Input your answer as positive a value.