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||$||500,000|
|Fixed Assets||3,500,000||Long-term Debt||2,000,000|
|Total Assets||$||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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