Milton Gaming Company currently has assets of $3,000,000 and accounts payable of $200,000.The firm's sales last year were $10,000,000.If the firm anticipates next year's sales to grow by 8% over that of last year and the firm pays out 25% of its net income in dividends,then what net profit margin is required in order to have the estimated external funds required be equal to zero?

Question

Quizplus · Accepted Answer

EFR = DS (A/S)- DS (AP/S)- mS(1+g)(1-d)
DS = .08 ´ 10,000,000 = 800,000
800,000 (3/10)- 800,000 (.2/10)- m (10,000,000)(1.08)(1-.25)= 0
224,000 = m (10,000,000)(1.08)(.75); m = .02765

Milton Gaming Company Currently Has Assets of $3,000,000 and Accounts