Question
You are hired by a client to assist in long-term financial modeling. You gather the following information from the financial statements for the year that
You are hired by a client to assist in long-term financial modeling. You gather the following information from the financial statements for the year that ended yesterday.
Sales $26,000
Net Income $2,000
Dividends $ 800
Your preliminary analysis reveals that:
- sales will increase by 15%
- assets, costs and current liabilities will be proportional to sales
- long-term debt is unrelated to sales
- payout ratio will be the same in the future
You know that the external funding needed (EFN) for the coming year will be $2,500. The client is contemplating changing the retention ratio to 70% in the coming year.
Do not re-calculate the EFN. Just carefully explain whether/why the EFN would change (increase, decrease, stay the same) or explain why there is not enough information to determine whether the EFN would change.
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