Suppose that ABC organization\'s current Sales = 20,000. Also, suppose ABC has f
ID: 2757264 • Letter: S
Question
Suppose that ABC organization's current Sales = 20,000. Also, suppose ABC has forecast the following values:
Costs of goods sold (% of sales)
0.85
General, selling, and administrative expenses (% of Sales)
0.10
Cash and securities (days sales cash)
15
Accounts receivable (collection period)
50
Inventories (inventory turnover)
10
Accounts payable (payables period)
60
Where days sales cash = cash / (sales/day), the collection period = AR / (sales/day), and the payables period = AP / (cost of sales/day).
Complete the template below before solving for the additional funds, or the external funding, needed to finance a 30% increase in sales.
Income Statement
Sales
Cost of goods sold
Gross profit
Expenses:
General, selling, and administrative expenses
Net interest expense
100
Earnings before taxes
Tax
Earnings after tax
Balance Sheet
Assets
Current assets:
Cash and securities
Accounts receivable
Inventories
Prepaid expenses
20
Total current assets
Net fixed assets
300
Total assets
Liabilities and owners' equity
Current liabilities
Bank loan
0
Accounts payable
Current portion of long-term debt
100
Accrued wages
30
Total current liabilities
Long-term debt
700
Common stock
150
Retained earnings
1500
Total liabilities and owners' equity
External funding required
???
Costs of goods sold (% of sales)
0.85
General, selling, and administrative expenses (% of Sales)
0.10
Cash and securities (days sales cash)
15
Accounts receivable (collection period)
50
Inventories (inventory turnover)
10
Accounts payable (payables period)
60
Explanation / Answer
Additional Fund Required = A0 x (S1-S0)/S0 - L0 x (S1-S0)/S0 - S1 x PM x b
= 5,611 x 30% - 2,833 x 30% - (20,000 x 130%) x (618 / 20,000 x 100) x 100%
= 1,683.30 - 849.90 - (26,000 x 3.09% x 100%)
= 833.40 - 803.40
= 30
Income Statement Sales 20,000 Cost of Goods Sold 17,000 Gross Profit 3,000 Expenses: General, selling and Administrative Expenses 2,000 Net Interest Expense 100 Earnings Before Tax 900 Tax (Balancing Figure) 282 Earnings After Tax 618 Balance Sheet Assets Current Assets: Cash and Securities (20,000 / 360 x 15) 833 Accounts Receivable (20,000 / 360 x 50) 2,778 Inventories (20,000 / 10) 2,000 Prepaid Expenses 20 Total Current Assets 5,631 Net Fixed Assets 300 Total Assets 5,931 Liabilities and owners' Equity Current Liabilities Bank Loan 0 Accounts Payable (17,000 / 360 x 60) 2,833 Current Portion of Long Term Debt 100 Accrued Wages 30 Total Current Liabilities 2,963 Long Term Debt 700 Common Stock 150 Retained Earnings 1500 Profit for The period 618 Total Liabilities and Owners' Equity 5,931 External Funding Required 30Related Questions
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