You are the owner of a small business that has the following balance sheet as of
ID: 2701691 • Letter: Y
Question
You are the owner of a small business that has the following balance sheet as of the most recent year:
Current assets - $5,000 A/P - $1,000
Net fixed assets - 10,000 Accruals - 1,000
Long-term debt - 5,000
Retained Earnings - 8,000
Total Assets - $15,000 Total Liab - $15,000
Fixed and current assets are fully utilized (full capacity), and the assets and spontaneous liabilities are expected to increase at the same rate as sales. Next year you expect sales to increase by 50%. You also expect to retain $2,000 of earning within the firm. This business is financed soley by debt and "organic growth", it has no common stock outstanding. What is next year's additional external funding requirment, what is your firm's AFN? Please show your work to be rated.
Explanation / Answer
What is next year's additional external funding requirment, what is your firm's AFN?
Total additional fund needed in next year = Additional Working capital + additional fixd asset (if any)
Working capital of present year = current asset - A/p - accrual
= 5000-1000-1000 = $3000
Fixed asset = 10000
Working capital & Fixed asset is proprtion to sale , therefore it will also increase in same rate i.e 50%
Additional Working capital required in next year = 3000*50% = 1500
Additional Fixed asset required = 10000*50% = 5000
Retained earning of the next year = $2000
Total additional fund needed in next year = $1500 + $5000 = $6500
Total additional external fund needed in next year= 6500-2000 = $4500
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