24. In 2012, the JCrew Company\'s sales were $15.0 million. Its balance sheet at
ID: 2653340 • Letter: 2
Question
24. In 2012, the JCrew Company's sales were $15.0 million. Its balance sheet at year end 2012 is shown below. JCrew's 2013 sales are expected to be $21 million. Earnings after tax is expected to be 6.0% of sales, and annual dividends of $575,000 are expected to be paid in 2013. The company presently has excess plant and equipment capacity. As a result, assume that the net fixed asset figure on the balance sheet will remain constant for 2013. Assuming that the ratios of assets (except fixed assets, net) to sales and accounts payable to sales in 2012 remain the same in 2013, calculate the total amount, i.e., one number, of external financing required for 2013, using the percentage of sales method.
JCrew Co. Balance Sheet
(December 31, 2012)($ millions)
Current assets: Current liabilities:
Cash $0.5 Accts. payable $0.7
Accts. Rec. 1.5 Notes payable 0.8
Inventory 2.5 Long-term debt 2.3
Fixed assets, net 1.5 Stockholders' equity 2.2
Total Assets $6.0 Total Liabilities and Equity $6.0 (Points : 3.5)
A. $750,000
B. $220,000
C. $835,000
D. None of the above
Explanation / Answer
Increase in Sales for the next Year = 6 / 15 = 40%
Total Current Assets = 4,500,000
Increase in Current Assets = 4,500,000 x 1.40 = 6,300,000
Additional fund Required to Finance Curent Assets = 1,800,000
Increase in Account Payable = 700,000 x 40% = 280,000
Profit of the Next Year = 21,000,000 x 6% = 1,260,000
Less: Dividend = 575,000
Retained Earning = 685,000
Additional Fund Required from external Financing:
1,800,000 - 280,000 - 685,000 = 835,000
So, the correct Option is C. $835,000
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