Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $15 million.

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $15 million. The firm also has a profit margin of 19 percent, a retention ratio of 30 percent, and expects sales of $22 million next year. If all assets and current liabilities are expected to grow with sales, what is the projected increase in retained earnings?

Assets Liabilities and Equity
Current Assets $ 2,000,000 Current Liabilities $ 2,500,000
Fixed Assets 8,000,000 Long-term Debt 1,500,000
Equity 6,000,000
Total Assets $ 10,000,000 Total Liabilities and Equity $ 10,000,000

[0.19 × 22 × 0.30] = 1.25m.


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