280 66 367 $ 572 Major Manuscripts, Inc. 2012 Balance Sheet 3,400 5,130 4,100 $

Question

280  

66  

367  

$

572  

Major Manuscripts, Inc.
2012 Balance Sheet

3,400    

5,130    

4,100    

$

11,550    

$

11,550    

   
Major Manuscripts, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent?

Major Manuscripts, Inc.
2012 Income Statement     Net sales $ 8,500     Cost of goods sold 7,215     Depreciation

280  

  Earnings before interest and taxes $ 1,005     Interest paid

66  

  Taxable Income $ 939     Taxes

367  

  Net income

$

572  

     Dividends $ 201  

Explanation / Answer

Additional Fund Needed = (Total Asset-Current Liabilty)*10% = (11550-2250)*10% = $930

Retained Earning = (572-201)*110% = $408.10

Additional debt is required = $930-408.10 = $521.90 or $522 approx

$522

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