Problem Six: Need for External Financing
Yeats Corporation is trying to determine its short-term cash needs. Given the following
information, how much money will Yeats need to borrow next year?
● Sales in Year 9 are expected to be $500M
● Operating Margin is expected to be 8%
● Interest expense is expected to be $6M (ignore additional interest expense generated by additional borrowings in Year 9)
● Tax rate is 40%
● Dividend payout ratio is 30%
● Increase in working capital is 5% of sales
● Increase in fixed assets is 10% of sales
● No new equity will be issued

Question

Quizplus · Accepted Answer

The Answer of Problem Six: Need for External Financing
Yeats Corporation is trying to determine its short-term cash needs. Given the following
information, how much money will Yeats need to borrow next year?
● Sales in Year 9 are expected to be $500M
● Operating Margin is expected to be 8%
● Interest expense is expected to be $6M (ignore additional interest expense generated by additional borrowings in Year 9)
● Tax rate is 40%
● Dividend payout ratio is 30%
● Increase in working capital is 5% of sales
● Increase in fixed assets is 10% of sales
● No new equity will be issued