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A company had $500,000 of sales for the year just ended and is projecting sales of $600,000 for the coming year. For every $1 increase in sales,38 cents of additional financing is required for the purchase of additional assets. The projected profit margin is20%, and60% of profits will be retained for reinvestment in the company. The amount of additional external financing needed by the company in the coming year is:
263157.90 amount of additional funds will be needed by company.
60% reinvestment from Profit so Project ed Profit=20% of $600,000=$120,000.
As per Question additional Financing Required=$100000*0.38=$38,000
So additional financing is covered from Profit meaning internally so here no external financing required.
