Pickup Industries Has a Profit Margin of 15% and a Dividend

question 164

Multiple Choice

Pickup Industries has a profit margin of 15% and a dividend payout of 40%. Last year's sales were $600 million and total assets were $400 million. None of the liabilities vary directly with sales, but
Assets and costs do. If the sales growth rate for Pickup is 20%, how much external financing is
Needed?

• A) $5.2 million
• B) $13.1 million
• C) $15.2 million
• D) $21.3 million
• E) $26.0 million

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Definitions:

Externality

A consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative.

External Costs

External costs, or negative externalities, are costs that are not borne by the parties directly involved in a transaction or activity but are imposed on third parties or society at large, such as pollution.

Internalized

This term generally refers to the absorption of external effects or costs by the decision-maker, often in the context of environmental economics.

Coase Theorem

An economic theory stating that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.