Question 3 (06 marks) Previous Years

Sales 1400 Retained Earnings 170 Costs 900 Dividends 180 Tax rate 0.3 Assets Liabilities/Equity Current Assets Current Liabilities Cash 460 Creditors 600 Debtors 540 Short Term Notes 100 Inventory 600 Non-Current Assets Non-Current Liabilities PP&E 2000 Debentures 900 Total Assets 3600 Owner's Equity Retained Profits 1000 Ordinary Shares 1000 3600

Percentage of Sales Approach - Assume all spontaneous variables move as a percentage of sales.

a) Given an expected increase in sales of 12%, what is the amount of external funding required?

b) To maintain the current debt/equity ratio how much debt and how much equity is required?

c) Assuming the company is only operating at 95% capacity, how much new funding (if any) is required?