The balance sheet of Pradhan Company at the end of year 20X0, which is just over,...
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The balance sheet of Pradhan Company at the end of year 20X0, which is just over, is given below: Share capital Retained earnings Long-term borrowings Short-term borrowings Trade creditors Fixed assets 50 60 130 80 60 Inventories Receivables Cash 90 80 20 50 20 Provisions 320 320 The sales for the year just ended were 400. The expected sales for the year 20X1 are 500. The profit margin is 5 percent and the dividend payout ratio is 50 percent. Required: (a) Determine the external funds requirement for Pradhan for the year 20X1. (b) How should the company raise its external funds requirement, if the following restrictions apply? (i) Current ratio should not be less than 1.25. (ii) The ratio of fixed assets to long-term loans should be greater than 1.25. Assume that the company wants to tap external funds in the following order: short-term bank borrowing, long-term loans, and additional equity issue. The balance sheet of Pradhan Company at the end of year 20X0, which is just over, is given below: Share capital Retained earnings Long-term borrowings Short-term borrowings Trade creditors Fixed assets 50 60 130 80 60 Inventories Receivables Cash 90 80 20 50 20 Provisions 320 320 The sales for the year just ended were 400. The expected sales for the year 20X1 are 500. The profit margin is 5 percent and the dividend payout ratio is 50 percent. Required: (a) Determine the external funds requirement for Pradhan for the year 20X1. (b) How should the company raise its external funds requirement, if the following restrictions apply? (i) Current ratio should not be less than 1.25. (ii) The ratio of fixed assets to long-term loans should be greater than 1.25. Assume that the company wants to tap external funds in the following order: short-term bank borrowing, long-term loans, and additional equity issue.
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Related Book For
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1111534912
8th edition
Authors: Gary A. Porter, Curtis L. Norton
Posted Date:
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