1) Suppose that Wall-E Corp. currently has the balance sheet shown below, and th
ID: 2782493 • Letter: 1
Question
1)
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.8 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $8.8 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments.
If current assets and current liabilities are expected to grow with sales, what amount of additional funds will Wall-E need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)
2)
Suppose that Psy Ops Industries currently has the balance sheet shown below, and that sales for the year just ended were $4.9 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $7.9 million next year.
If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will Psy Ops need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.8 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $8.8 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments.
Explanation / Answer
Answer to Q2
i) Current assets / Sales = 1960000/4900000 = 40%
Current liab / Sales - 2009000/4900000 = 41%
ii) Additional Funds required: 504000
Or, Additional funds = Additional assets - Additional liabilities - Retained earnings = (3160000 - 1960000) - (3239000-2009000) - 474000 = 504000
CA (40%) 3160000 CL (41%) 3239000 FA 3950000 LTL 1550000 Equity 2351000 Bal fig 504000 Retained 474000 7110000 7614000Related Questions
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