Using the definitions below, show that EFN can be written as EFN = PM(S)b + [A
Question:
Using the definitions below, show that EFN can be written as
EFN = – PM(S)b + [A – PM(S )b] × g
Asset needs will equal A × g. The addition to retained earnings will equal PM(S)b × (1 + g).
S = Previous year’s sales
A = Total assets
D = Total debt
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
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Related Book For
Corporate Finance
ISBN: 978-0071339575
7th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro
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