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EFN Define the following:
S = Previous year’s sales
A = Total assets
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio
Assuming that all debt is constant, show that EFN can be written as:
EFN = – PM(S)b + [A – PM(S)b] × g
Hint: Asset needs will equal A × g . The addition to retained earnings will equal PM(S) b × (1 + g ).
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