Cristine T.

Gomobar 1-MBA

Chapter 3: Financial Forecasting

a. Sales = .15 $100 million = 15 million

Spontaneous assets = 5% + 15% + 25% + 40% = 85%
Spontaneous liabilities = 15% + 10% = 25%

A
RNF S L S PS 2 1 D
S1 S1

RNF .85 $15 million .25 $15 million .06 $115 million 1 .5
RNF $12.75 million $3.75 million $3.45 million
RNF $5.5 million
Where:

RNF is Required New Funds

S is Change in sales

A
is the Percentage Relationship of Variable (Spontaneous) Assets to Sales
S

L
is the Percentage Relationship of Variable (Spontaneous) Liabilities to
S
Sales

P is the Profit Margin

D is the Dividend Payout Ratio

 b. If Landis reduces the payout ratio, the company will retain
more earnings and need less external funds. A slower growth
rate means that fewer assets will have to be financed and in
this case, less external funds would be needed. A declining
profit margin will lower retained earnings and force Landis
Corporation to seek more external funds.

c. Landis Corporation

Balance Sheet - December 31, 2009

($ millions)
Cash $ 5.75 Accounts payable $17.25
Accounts receivable 17.25 Accruals 11.50
Inventory 28.75 Notes payable 17.551
Net capital assets 46.00 Long-term bonds 5.00
Common stock 10.00
Retained earnings 36.452
$97.75 $97.75
1
Original notes payable plus required new funds. This is the plug figure.
2
2008 retained earnings (beginning of 2009) + PS2 (1 - D)