Suppose that Road Industries currently has the balance sheet shown as follows, and that sales for the year just ended were $80 million

Suppose that Road Industries currently has the balance sheet shown as follows, and that sales for the year just ended were $80 million. The firm also has a profit margin of 5 percent, a retention ratio of 10 percent, and expects sales of $82 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 the company need from external sources to fund the expected growth?

Assets Liabilities and Equity
Current Assets $ 21,500,000 Current Liabilities $ 10,000,000
Fixed Assets 53,000,000 Long-term Debt 34,000,000
Equity 30,500,000
Total Assets $ 74,500,000 Total Liabilities and Equity $ 74,500,000

Multiple Choice

[($82,000,000/$80,000,000) × ($21,500,000] + $53,000,000 − [($82,000,000/$80,000,000) × ($10,000,000)] − $34,000,000 − $30,500,000 − (0.05 × $82,000,000 × 0.10) = $22,037,500 + $53,000,000 − $10,250,000 − $34,000,000 − $30,500,000 − $410,000 = −$122,500, so none.

 

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