Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $1 million. The firm also has a profit margin of 10 percent,

 

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $1 million. The firm also has a profit margin of 10 percent, a retention ratio of 20 percent, and expects sales of $2 million next year. If all assets and current liabilities are expected to grow with sales, what is the necessary increase in assets?

Assets Liabilities and Equity
Current Assets $ 500,000 Current Liabilities $ 200,000
Fixed Assets 250,000 Long-term Debt 300,000
Equity 250,000
Total Assets $ 750,000 Total Liabilities and Equity $ 750,000

 

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(750,000/1m) x 1m = 750,000.