Tinbergen Cans expects sales next year to be $50,000,000. Inventory and accounts receivable (combined) will increase $8,000,000 to accommodate this sales level. The company has a profit margin of 6 percent. Its dividend payout is 30 percent of profit. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

Question

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$ 50,000,000 Sales
0.06 Profit margin
3,000,000 Net income
− 900,000 Dividends (30%)
$ 2,100,000 Increase in retained earnings
$ 8,000,000 Increase in assets
− 2,100,000 Increase in retained earnings
$ 5,900,000 External funds needed

Tinbergen Cans Expects Sales Next Year to Be $50,000,000