External Funds Needed (EFN)

Percentage increase in sale (Sale of 2011 Sale of 2010) 100 = (5,868,260 4,024,422) 100 = 145.8% That means 45.8 % increase in the sale

Current Balance Sheet

Pro Forma Balance Sheet

Current assets Fixed assets Total assets Short-term debt Long-term debt Common stock Retained earnings Total financing

(Rupees in Millions) 1172.9 1710.09 907.7 1323.43 2080.6 3033.52 813.7 118.37 138.4 201.79 100.7 100.7 1027.8 1498.53 2080.6 1919.39 1114.13

29% of sale 22.5% of sale 51.7% of sale 2% of sale 3.4% of sale Constant Net Income Funds needed (the difference between total assets and total financing)

From this information we can determine the pro forma balance sheet, which is on the right-hand side. The change in retained earnings will be

Net income Dividends = Change in retained earnings (0.458 1027.8) (0.34 0.458 1027.8) = 247.65 But in this question last year company did not pat the dividend. So the plug variable is debt and stock.

External Funds Needed (EFN)

EFN

=
=

A0 S - L0 S - p (1 - d) S1 S0 S0
2080 .6 5868 .3

2687.6

952.1 5868 .3

2687.6 (0.06 8555.98) (1 0.34)

= 178.02

Decision for Financing :

So Altus Company limited takes the decision for financing of debt and equity financing up their proportion financing cost because interest cost is tax deductable.sc we calculate

Degree of Financial Leverage

= % =
%. %

= 12.3

A leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. Most likely, the firm under evaluation will be trying to optimize EPS, and this ratio can be used to help determine the most appropriate level of financial leverage to use to achieve that goal. A Company can do several things to increase its sustainable growth rate as seen from the: 1. Sell new shares of stock. 2. Increase its reliance on debt. 3. Reduce its dividend-payout ratio. 4. Increase profit margins. 5. Decrease its asset-requirement ratio.