Final answer:
The level of required new funds for BHS Inc. is calculated by finding the differences between the increases in assets, increases in liabilities, and the dividends paid out from profits. For BHS Inc., this results in required new funds of $60,000.
Step-by-step explanation:
The student is seeking to understand the level of required new funds for BHS Inc., given its projected increase in sales, asset and liability structure, profit margin, and dividend payout ratio. To calculate this, we must follow several steps.
Calculate the projected increase in assets and liabilities based on the new sales figure.
Determine the profits based on the new sales and profit margin.
Calculate the dividends to be paid out based on the profit and dividend payout ratio.
Finally, deduce the required new funds by subtracting both the increase in liabilities and dividends from the increase in assets. The remaining balance reflects the new funds required.
Let's break this down:
Projected increase in assets: $500,000 x 0.70 = $350,000 (new asset level) - $300,000 x 0.70 = $210,000 (current asset level) = $140,000 increase.
Projected increase in liabilities: $500,000 x 0.30 = $150,000 (new liability level) - $300,000 x 0.30 = $90,000 (current liability level) = $60,000 increase.
Projected profits: $500,000 x 0.10 = $50,000.
Dividends paid: $50,000 x 0.40 = $20,000.
Required new funds: $140,000 (increase in assets) - $60,000 (increase in liabilities) - $20,000 (dividends paid) = $60,000.