Question

If Planner’s Peanuts dividend payout ratio in Problem 10 is fixed at 50%, calculate the required total external financing for growth rates in 2020 of (a) 15%, (b) 20%, and (c) 25%.

Answer 1

To calculate the required total external financing for growth rates in 2020 with a fixed dividend payout ratio of 50%, you need to determine the increase in profits and the increase in dividends. Then, use the formula to calculate the required external financing.

Step-by-step explanation:

To calculate the required total external financing for growth rates in 2020 with a fixed dividend payout ratio of 50%, you need to determine the increase in profits and the increase in dividends. The formula to calculate the required external financing is:

(Increase in Retained Earnings - Increase in Dividends) / (1 - Dividend Payout Ratio)

Let's calculate the required total external financing for growth rates of 15%, 20%, and 25%:

(a) 15% growth rate:

(15 million - 7.5 million) / (1 - 0.5) = 15 million

(b) 20% growth rate:

(20 million - 10 million) / (1 - 0.5) = 20 million

(c) 25% growth rate:

(25 million - 12.5 million) / (1 - 0.5) = 25 million