A company\'s assets consist of $200,000 of cash, $200,000 of accounts receivable

Question

A company's assets consist of $200,000 of cash, $200,000 of accounts receivable, $250,000 of inventory, and $700,000 of plant. Its liabilities consist of $150,000 of accounts payable and S600,000 of long-term debt. Its equity consists of $350,000 of common stock and $250,000 of retained earnings. The company's sales last year were $1,300,000, its profit margin was 3.4%, its earnings retention ratio was 30%, and it operated at 74.7% of capacity. If the company's sales are expected to increase by 13% this year, what amount of additional funds does the company need?

Explanation / Answer

In the given question the company's present sales is $1,300,000 which is 74.70% of the operating power by the company. If we talk about if the company is expecting its sales by 13% than the company's sales in addiition to 13% will be $1,469,000 and if the compant operates to its 100% power than also they will cover the present requirement of 13% with given resources and the power already invested. As we can see presently company also having retained earnings of $250,000 so if the sales is getting increased by 13% than presently company do not need any additional funds to invest in the production.

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