A firm, which is currently operating at full capacity, has sales of $2,000, curr

Question

A firm, which is currently operating at full capacity, has sales of $2,000, current assets of $600, current liabilities of $300, net fixed assets of $1,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 10 percent next year. If all assets, liabilities and costs vary directly with sales, how much additional external equity financing is required for next year?

Please show steps and equations.

Explanation / Answer

Ans

Sales = $2000

Profit = 5% of Sales = 5% of 2000= $100

Cost = Sales

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