. Suppose that the 2013 actual sales was $4,000,000 and Net income was $200,000.
ID: 2767325 • Letter: #
Question
. Suppose that the 2013 actual sales was $4,000,000 and Net income was $200,000. Sales are projected to rise by 15 percent in the coming year, and the Net income is expected to increase with sales. The firm pays out 50% of its net income in the form of dividends. The balance sheet items that are expected to increase at the same 15 percent rate as sales are indicated by **** type. What amount of additional funds will be needed?
Cash
$600,000
****
A/R
$137,000
****
Inv
$1,013,000
****
Current Assets
$1,750,000
FA
$5,000,000
****
TA
$6,750,000
A/P
$179,000
****
N/P
$980,000
Accruals
$375,000
****
Current Liab
$1,534,000
LTD
$1,000,000
Total Debt
$2,534,000
Common Sto
$4,000,000
RE
$216,000
Equity
$4,216,000
TD +E
$6,750,000
AFN
$764,400
. Suppose that the 2013 actual sales was $4,000,000 and Net income was $200,000. Sales are projected to rise by 15 percent in the coming year, and the Net income is expected to increase with sales. The firm pays out 50% of its net income in the form of dividends. The balance sheet items that are expected to increase at the same 15 percent rate as sales are indicated by **** type. What amount of additional funds will be needed?
Cash
$600,000
****
A/R
$137,000
****
Inv
$1,013,000
****
Current Assets
$1,750,000
FA
$5,000,000
****
TA
$6,750,000
A/P
$179,000
****
N/P
$980,000
Accruals
$375,000
****
Current Liab
$1,534,000
LTD
$1,000,000
Total Debt
$2,534,000
Common Sto
$4,000,000
RE
$216,000
Equity
$4,216,000
TD +E
$6,750,000
AFN
$764,400
Cash
$600,000
****
A/R
$137,000
****
Inv
$1,013,000
****
Current Assets
$1,750,000
FA
$5,000,000
****
TA
$6,750,000
A/P
$179,000
****
N/P
$980,000
Accruals
$375,000
****
Current Liab
$1,534,000
LTD
$1,000,000
Total Debt
$2,534,000
Common Sto
$4,000,000
RE
$216,000
Equity
$4,216,000
TD +E
$6,750,000
AFN
$764,400
Explanation / Answer
Answer Balance sheet Present Prospective Cash 600000 690000 A/R 137000 157550 INV 1013000 1164950 Current Assets 1750000 2012500 Fixed Assets 5000000 5750000 T A 6750000 7762500 A/P 179000 205850 N/P 980000 980000 Accruals 375000 431250 Current Liab 1534000 1617100 LTD 1000000 1000000 Total Debt 2534000 2617100 Common Stock 4000000 4000000 RE 216000 216000 Equity 4216000 4216000 TD+E 6750000 6833100 AFN 764400 929400 AFN = Current level of asstes*% increase in sales-current level of liabilites* % increase in sales-New level of sales*profit Margin*retaination rate Increase in assets = 7762500-6750000 = 1012500 Increase in liabilities = 2617100-2534000 = 83100 Increase in retained earning = Prospective sale *Profit Margin*retention rate = 4600000*5%*50% =115000 Additional Fund needed = 1012500-83100-115000 Additional Fund needed = 814400 Working notes Prospective sales 4000000 increase in sales 600000 Total sales 4600000 Profit Margin =200000/4000000*100 = 5%
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