In 1998, Hepler Company\'s sales were $26 million and its total assets were $10

Question

In 1998, Hepler Company's sales were $26 million and its total assets were $10 million. Current liabilities were $4 million and total equity was $2 million. Hepler Company's sales for 1999 are forecasted to be $34 million, earnings after taxes are expected to be 5 percent of sales and dividends of $800,000 are expected to be paid. Assuming that the ratios "assets to sales" and "current liabilities to sales" in 1998 remain the same in 1999, determine the amount of additional financing required. a. $1,446,154 b. $ 946,154 c. $6,946,154 d. $1,746,154

Explanation / Answer

% increase in sales = (34 – 26)/26 = 30.7692%

Additional fund required

= (total asset * % of sales increase) – (current liability * % of sales increase) – (new sales * profit % - dividend)

= (10000000 * 30.7692%) – (4000000 * 30.7692%) – (34000000 * 5% - 800000)

= 3076920 – 1230768 – 900000

= $ 946152

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