Assume the following facts about a firm: $\begin{array}{lr}
\text { Sales } _ {this year }&\$100,000\
\text { Net income }_ {this year }&\$10,000\
\text { Assets }_ {this year }&\$50,000\
\text { Current liabilities }_ {this year }&\$2,000\\text { Anticipated growth rate }&12\%\
\text { Proposed dividend payout ratio }&60\%
\end{array}$
The firm's external funding requirement for next year is
(Hint: You don't have to remember the EFR formula. Just realize that the funding requirement is the growth in assets less that in current liabilities less next year's retained earnings.)

Question

Assume the following facts about a firm: $\begin{array}{lr}
\text { Sales } _ {this year }&\$100,000\
\text { Net income }_ {this year }&\$10,000\
\text { Assets }_ {this year }&\$50,000\
\text { Current liabilities }_ {this year }&\$2,000\\text { Anticipated growth rate }&12\%\
\text { Proposed dividend payout ratio }&60\%
\end{array}$
 The firm's external funding requirement for next year is
(Hint: You don't have to remember the EFR formula. Just realize that the funding requirement is the growth in assets less that in current liabilities less next year's retained earnings.)

Quizplus · Accepted Answer

The external funding requirement (EFR) is calculated as the growth in assets minus the growth in current liabilities minus next year's retained earnings. The growth in assets is $50,000 * 12% = $6,000. The growth in current liabilities is $2,000 * 12% = $240. Next year's retained earnings are $10,000 * (1 - 60%) * (1 + 12%) = $4,480. Therefore, EFR = $6,000 - $240 - $4,480 = $1,280.

Assume the Following Facts About a Firm The Firm's External Funding Requirement for Next Year Is (Hint

Assume the Following Facts About a Firm The Firm's External Funding Requirement for Next Year Is
(Hint