Question

creative analysis, inc. is currently operating at maximum capacity. assume that all costs and net working capital vary directly with sales. the dividend payout ratio will remain constant. how much is the external financing needed (efn) if sales are projected to increase by 10%?

Answer 1

The external financing needed (EFN) for creative analysis, inc. when sales are projected to increase by 10% is $10 million.

To calculate the external financing needed (EFN), we need to determine the increase in sales and the corresponding increase in costs and net working capital. Since all costs and net working capital vary directly with sales, we can use the given percentage increase in sales to calculate the EFN.

Let's assume the current sales for creative analysis, inc. are $100 million. If sales are projected to increase by 10%, the increase in sales would be $10 million ($100 million * 10%). Since all costs and net working capital vary directly with sales, the EFN would also be $10 million. Therefore, the external financing needed is $10 million.