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20. Mary?s Motors, which is currently operating at full capacity, has sales of $

ID: 2648171 • Letter: 2

Question

20. Mary?s Motors, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of Si ,200, net fixed assets of $27,500. and a 5% 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 4.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year? a. -$259.75 b. -$967.30 e. $967.30 d. $1,099.08 e. $1,515.25

Explanation / Answer

Ans is a -259.75 Particulars Existing Next Year Working Notes Sales                                                                     29,000.00                                                                          30,305.00 29,000*104.5% Current assets                                                                       1,600.00                                                                             1,672.00 1,600*104.5% Current Liabilities                                                                       1,200.00                                                                             1,254.00 1,200*104.5% Working Capital(CA- CL)                                                                           400.00                                                                                418.00 Net Fixed Assets                                                                     27,500.00                                                                          28,737.50 27,500*104.5% Net Assets (Net Fixed assets + Working Capital)                                                                     27,900.00                                                                          29,155.50 Profit Margin 5% 5% Profit Margin in $(Sales *Profit Margin percentage) 1450.00 1515.25 Since there are no debt all the Net assets are financed by Equity                                                                     27,900.00                                                                          29,155.50 Additional Equity Financing 29,155.50 - 27,900 Additional Equity Financing required                                                                       1,255.50 We have also earned profit of 1,515.25 So equity financing through profit 1,255.50 - 1,515.25 So equity financing through profit                                                                         (259.75)