Suppose that Wind Em Corp. currently has the balance sheet shown below, and that

Question

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.4 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $7.4 million next year. Assets Liabilities and Equity Current assets $ 1,616,000 Current liabilities $ 1,804,800 Fixed assets 4,400,000 Long-term debt 1,800,000 Equity 2,411,200 Total assets $ 6,016,000 Total liabilities and equity $ 6,016,000 If all assets and current liabilities are expected to grow with sales, what amount of additional funds will Wind Em need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)

Explanation / Answer

Sales growth rate-(amount in $)

This year-6400000

Next year-7400000

Increase in Sale- 1000000

Growth percentage-( 1000000÷6400000)*100 = 15.625%

If assets grow as sales grow assets will grow-6016000*15.625%=940000.

This amount of $940000 will be arranged from external funds.

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