Suppose that Psy Ops Industries currently has the balance sheet shown as follows, and that sales for the year just ended were $6 million.

Suppose that Psy Ops Industries currently has the balance sheet shown as follows, and that sales for the year just ended were $6 million. The firm also has a profit margin of 9 percent, a retention ratio of 5 percent, and expects sales of $8.5 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, how much additional funds will Psy Ops need from external sources to fund the expected growth?

Assets Liabilities and Equity
Current Assets $ 2,500,000 Current Liabilities $ 500,000
Fixed Assets 3,500,000 Long-term Debt 2,000,000
Equity 3,500,000
Total Assets $ 6,000,000 Total Liabilities and Equity $ 6,000,000

[8.5/6 × 2.5 + 3.5 − 8.5/6 × 0.5 − 2 − 3.5 − (0.09 × 8.5 × 0.05)] = 3.5417 + 3.5 − 0.7083 − 2 − 3.5 − 0.0383 = 0.7951m.


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