Mansfield Corporation had 2013 sales of $100 million. The balance sheet items that vary directly with sales

Question:

Mansfield Corporation had 2013 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:

Percent

Cash ..............5%

Accounts receivable ........15

Inventory ............20

Net fixed assets .........40

Accounts payable ........15

Accruals ............10

Profit margin after taxes ......10%

The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2013 was $33 million. Notes payable are currently $7 million. Long-term bonds and common stock are constant at $5 million and $10 million, respectively.

a. How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.)

b. What will happen to external fund requirements if Mansfield Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin? Discuss each of these separately.

c. Prepare a pro forma balance sheet for 2014 assuming that any external funds being acquired will be in the form of notes payable. Disregard the information in part b in answering this question (that is, use the original information and part a in constructing your pro forma balance sheet).

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...