mansfield corporation

Project Description:

mansfield corporation had 2010 sales of $100 million. the balance sheet items that vary directly with sales and the profit margin are as follows:

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 2010 was $33 million. notes payable are currently $7 million. long term bonds and common stock are constant at $5 million and $10 million.

a. how much additional external capital will be required for next year if sales increase 15%? (assume 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 profits margin? discuss each of these separately.
c. prepare a pro forma balance sheet for 2011 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).
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