Suppose that Gyp Sum Industries currently has the balance sheet shown below, and

Question

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $10.2 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $8.2 million next year.

If all assets and current liabilities are expected to shrink with sales, what amount of additional funds will Gyp Sum need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)

Assets Liabilities and Equity Current assets $ 2,124,000 Current liabilities $ 1,707,480 Fixed assets 4,200,000 Long-term debt 1,600,000 Equity 3,016,520 Total assets $ 6,324,000 Total liabilities and equity $ 6,324,000

If all assets and current liabilities are expected to shrink with sales, what amount of additional funds will Gyp Sum need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)

Explanation / Answer

sales growth rate = (8.2-10.2)/10.2 = -19.6078%

additional funds needed = 6,324,000*(-19.6078%) - (1,707,480 + 1,600,000)*(-19.6078%) - 8,200,000*0.3*0.2 = -1,083,473.21

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