Carter Paint Company has plants in nine Midwestern states. Sales for last year were$100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (Including fixed assets) and current liabilities will vary directly with sales.
Balance sheet
Assets liabilities and stockholders’ equity
Cash 5 accounts payable 15
Accounts rec 15 accrued wages 6
Inventory 30 accrued taxes 4
Current assets 50 current liabilities 25
Fixed assets 40 notes payable 30
Common stock 15
Retained earnings 20
Total liability and
Total assets 90 stockholders’ equity 90
Carter paint has an after tax profit margin of 5% and a dividend payout ratio of 30%.
If sales grow by 10% net year, determine how many dollars of new funds are needed to finance the expansion. (Assume carter paint is already using assets at full capacity and that plant must be added.
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