Question

Assume the profit margin is projected to increase to 9 percent while the dividend payout ratio remains constant. If sales increase by 12 percent, what is the projected total retained earnings (hint: add the additional RE onto the current RE)? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190.

Answer 1

The projected retained earnings are $1538.76

Step-by-step explanation:

Profit margin=net income/sales

profit margin is 9%

sales growth rate is 12%

9%=net income/($4,700*(1+12%))

9%=net income/5264

9%*5264=net income

net income=$473.76

Projected total retained earnings=$1190+$473.76-$125=$1538.76