Answer:
AE = Increase in Assets - Increase in Liabilities - Profit × (1- payout ratio)
= [($51,500 + $5,100)×0.03 - ($6,200)×0.03 - ($47,000×1.03×0.05)×(1-0)]
= -$908.50
<em>Here, it can be clearly denoted that the firm does not need to raise the additional equity .</em>
Explanation:
Given :
Sales = $47,000
Current assets = $5,100
Current liabilities = $6,200
Net fixed assets = $51,500
Profit margin = 5 %
Sales are expected to increase by 3 percent next year
∴
The additional equity financing(AE) can be computed as follow:
AE = Increase in Assets - Increase in Liabilities - Profit × (1- payout ratio)
= [($51,500 + $5,100)×0.03 - ($6,200)×0.03 - ($47,000×1.03×0.05)×(1-0)]
= -$908.50
Here, it can be clearly denoted that the firm does not need to raise the additional equity .
