A firm has sales of $63,000, current assets of $13,000, current liabilities of $14,500, net fixed assets of $74,000, and a profit margin of 7.50%. The firm has no long-term debt and does not plan on a...
A firm has sales of $63,000, current assets of $13,000, current liabilities of $14,500, net fixed assets of $74,000, and a profit margin of 7.50%. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 4% next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?
A. $4,914
B. $2,000
C. $4,725
D. $2,900
Homework Answers
Current Year:
Sales = $63,000
Current Assets = $13,000
Current Liabilities = $14,500
Net Fixed Assets = $74,000
Profit Margin = 7.50%
Total Assets = Current Assets + Net Fixed Assets
Total Assets = $13,000 + $74,000
Total Assets = $87,000
Next Year:
Growth Rate = 4%
Sales = $63,000 * 1.04
Sales = $65,520
Net Income = Sales * Profit Margin
Net Income = $65,520 * 7.50%
Net Income = $4,914
Additions to Retained Earnings = Net Income
Additions to Retained Earnings = $4,914
Increase in Total Assets = $87,000 * 0.04
Increase in Total Assets = $3,480
Increase in Current Liabilities = $14,500 * 0.04
Increase in Current Liabilities = $580
Additional Equity Financing = Increase in Total Assets -
Increase in Current Liabilities - Additions to Retained
Earnings
Additional Equity Financing = $3,480 - $580 - $4,914
Additional Equity Financing = -$2,014
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A firm has sales of $63,000, current assets of $13,000, current liabilities of $14,500, net fixed assets of $74,000, and a profit margin of 7.50%. The firm has no long-term debt and does not plan on a...
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