Problem Six: Need for External Financing

question 22

Essay

Problem Six: Need for External Financing
Yeats Corporation is trying to determine its short-term cash needs. Given the following
information, how much money will Yeats need to borrow next year?
● Sales in Year 9 are expected to be $500M
● Operating Margin is expected to be 8%
● Interest expense is expected to be $6M (ignore additional interest expense generated by additional borrowings in Year 9)
● Tax rate is 40%
● Dividend payout ratio is 30%
● Increase in working capital is 5% of sales
● Increase in fixed assets is 10% of sales
● No new equity will be issued

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Definitions:

Standard Of Living

The degree of wealth, comfort, material goods, and necessities available to an individual, group, or society.

Inflation Rate

The rate expressed as a percentage at which the average price level of goods and services increases, leading to a decrease in purchasing power.

CPI

A rephrased definition for Consumer Price Index, which tracks changes in the price level of a market basket of consumer goods and services purchased by households.

Dividing

The arithmetic operation of distributing a quantity into equal parts or groups.