Problem 4-29 Percent-of-sales method [LO3]

Conn Man's Shops, Inc., a national clothing chain, had sales of $330 million last year. The business has a steady net profit margin of 7 percent and a dividend payout ratio of 30 percent. The balance sheet for the end of last year is shown below.

Balance Sheet End of Year (in $ millions)
Assets			Liabilities and Stockholders' Equity
Cash	$	33	Accounts payable	$	53
Account receivable		28	Accrued expenses		21
Inventory		74	Other payables		58
			Common stock		66
Plant and equipment	$	129	Retained earnings	$	66
Total assets	$	264	Total liabilities and shareholders' equity	$	264

The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is forecast for the company.

All balance sheet items are expected to maintain the same percent-of-sales relationships as last year, * except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 7 percent.)

*This included fixed assets as the firm is at full capacity.

(a)

Will external financing be required for the company during the coming year?

	Yes
	No

(b)	What would be the need for external financing if the net profit margin went up to 8.50 percent and the dividend payout ratio was increased to 60 percent? (Enter your answer in dollars not in millions. Omit the "$" sign in your response.)

Required new funds

$