Kevin Changs restaurant chain has a net income of $1 million, a dividend payout ratio of 50%,
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Question:
Kevin Chang’s restaurant chain has a net income of $1 million, a dividend payout ratio of 50%, and assets of $8 million. If Kevin wishes his restaurant chain to grow at 10% next year, and his assets must grow with sales and net income, what is his external financing needed? You may calculate the pro-formas assuming the only liabilities that Kevin has are long term debt and retained earnings (equity).
**Please explain each step
Answer= Needs to fund $800,000 increase in assets. New ΔRE = ($1.1 million *1/2) = $550,000. So the EFN = 800,000-550,000 = $250,000.
Related Book For
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston
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