I needed some help answering this practice problem and maybe a little insight on
ID: 2692644 • Letter: I
Question
I needed some help answering this practice problem and maybe a little insight on how to for further problems. Thanks in advance. In 2012, Randall Corporation had total sales of 140 million dollars in 2012 the firm's profit margin is 10%. The dividend payout ratio is 50 percent of earnings. Notes payable are currently $9.8 million. Long-term bonds and common stock are $7million and $14 million respectively. Retained earnings at the end of 2012 were $46.2 million. The balance sheet items that vary directly with sales are shown below: Percent Cash 3% Accounts receivable 17% Inventory 20% Net fixed assets 40% Accounts payable 15% Accruals 10% 1. If sales are forecasted to increase 15 percent next year. How much additional external capital will be required to support the new level of sales? Assume the firm is operating at its full production capacity. 2. What will happen to the external funds requirements if Randall Corporation reduces the dividend payout ratio, experiences a decline in its profit margin, or if sales grow at a slower rate than the anticipated 15 percent? Please discuss each of these separately, as individual events. Note: It is not necessary to do any calculations to answer this question. Think about what would happen and answer the questions in a short sentence or two. 3. Prepare a pro forma balance sheet for 2013, assuming that any external funds being acquired will be in the form of notes payable. Do not use the information in question # 2 in your preparation of this pro forma balance sheet. Use only the original information and question # 1.Explanation / Answer
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