20. Mary?s Motors, which is currently operating at full capacity, has sales of $
ID: 2648171 • Letter: 2
Question
20. Mary?s Motors, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of Si ,200, net fixed assets of $27,500. and a 5% 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, how much additional equity financing is required for next year? a. -$259.75 b. -$967.30 e. $967.30 d. $1,099.08 e. $1,515.25Explanation / Answer
Ans is a -259.75 Particulars Existing Next Year Working Notes Sales 29,000.00 30,305.00 29,000*104.5% Current assets 1,600.00 1,672.00 1,600*104.5% Current Liabilities 1,200.00 1,254.00 1,200*104.5% Working Capital(CA- CL) 400.00 418.00 Net Fixed Assets 27,500.00 28,737.50 27,500*104.5% Net Assets (Net Fixed assets + Working Capital) 27,900.00 29,155.50 Profit Margin 5% 5% Profit Margin in $(Sales *Profit Margin percentage) 1450.00 1515.25 Since there are no debt all the Net assets are financed by Equity 27,900.00 29,155.50 Additional Equity Financing 29,155.50 - 27,900 Additional Equity Financing required 1,255.50 We have also earned profit of 1,515.25 So equity financing through profit 1,255.50 - 1,515.25 So equity financing through profit (259.75)
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