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

Question

Suppose that Wind Em Corp. currently has the balance sheet shown as follows, and that sales for the year just ended were $12 million. The firm also has a profit margin of 20 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 necessary increase in assets? Liabilities and Equity Current Liabilities $2,500,000 Assets Current $2,000,000 Assets Long- $8,000,000 Term $1,500,000 Assets Debt ui $6,000,000 Total $10,000.000 Liabilities $10,000,000 Assets & Equitvy O $4,833,000 O $8,333,333.33 O $6,333,333.33 O$6,240,000

Explanation / Answer

Necessary increase in assets = A/S0 * Change in Sales

= (10 Million/12 million)*(22 Million - 12 Million)

= $8,333,333.3333

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