External Funds Needed Problem

Johnson company is expected to increase sales from $6,000,000 to $8,000,000. Total assets will be $3,000,000 at the end of the year.

Assuming that Johnson company is already at full capacity, it will need to grow its assets at the same rate as its projected sales.   Current liabilities were $1,500,000 consisting of $1,000,000 of notes payable, $250,000 of accounts payable, and $250,000 of accruals.

After tax profit margin is forecasted to be 3.5%, and forecasted payout ratio is 50%.

a, Calculate the Capital Intensity Ratio (A*/S0)

b, Calculate Spontaneous Liabilities-to-sales Ratio. (L*0/S0)

c. Calculate Johnson’s expected Net Income one year from now.

(OVER)

d. Calculate Johnson’s expected Dividend Payments in the following year.

e. Calculate the External Funds needed by Johnson Corporation.