Financial Forecasting. Small Motors Inc, which is currently operating at full ca

Question

Financial Forecasting. Small Motors Inc, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 percent profit margin. 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 4.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, answer the following questions? ? Hint: (Additional Financing Required = Projected assets projected liabilities-current equity-projected increase in retained earnings)

a. What is the amount of projected assets?

b. What is the amount of projected liabilities?

c. What is the current equity?

d. What is the projected increase in retained earning?

e. How much additional equity financing is required for next year?

Explanation / Answer

a. What is the amount of projected assets?

The amount of projected assets = (1600+27500)*1.045 = $ 30,409.50

b. What is the amount of projected liabilities?

The amount of projected liabilities = 1200*1.045 = $ 1254

c. What is the current equity?

Current equity = 1600+27500 - 1200 = 27900

d. What is the projected increase in retained earning?

Projected increase in retained earning = 29000*5%*1.045 = $ 1515.25

e. How much additional equity financing is required for next year?

Additional Financing Required = Projected assets - projected liabilities-current equity-projected increase in retained earnings

Additional Financing Required = 30409.50 - 1254 - 27900 - 1515.25

Additional Financing Required = -259.75

Note: Since Additional Financing Required is negative answer would also be Zero

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