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4-26.

Solution:
Jordan Aluminum Supplies
Earnings after taxes $30, 000
Profit margin =  10%
Sales $300, 000
Dividends $18, 000
Payout ratio =   60%
Earnings 30, 000

Change in Sales = 20% × $300,000 = $60,000

Spontaneous Assets = Current Asserts = Cash + Acc. Rec. +


Inventory

Spontaneous Liabilities = Acc. Payable + Accr. Wages + Accr.


Taxes
A L
RNF=  ΔS   ΔS  PS2  1  D 
S S

$90,000 $12,000
=  $60,000    $60,000   .10  $360,000   1  .60 
$300,000 $300,000

=.30  $60,000   .04  $60,000   .10  $360,000   .4 

= $18,000  $2,400  $14, 400

RNF = $1, 200

The firm needs $1,200 in external funds.


4-27. Solution:
Cambridge Prep Shops
A L
Required New Funds =  S   S  PS2  1  D 
a. S S
S = 15%  $200,000,000  $30, 000, 000

150 60
RNF   $30,000,000    $30,000,000 
200 200
 .12  $230,000,000   1  .4 

 .75  $30,000,000   .30  $30,000,000 


 .12  $230,000,000   .6 

 $22,500,000  $9,000,000  $16,560,000

RNF =  $3,060,000 

A negative figure for required new funds indicates that an


excess of funds ($3.06 mil.) is available for new investment.
No external funds are needed.

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