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

Question

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $7.4 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $8.4 million next year.

If all assets and current liabilities are expected to grow with sales, what amount of additional funds will Wind Em need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $7.4 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $8.4 million next year.

Explanation / Answer

increase in assets= 7696000*(8.4mn-7.4mn)/7.4mn
=$1,040,000
Increase in current liability=3001440*(8.4mn-7.4mn)/7.4mn
=$405,600

Increase in retained earnings=expectes dales*profit margin *retention ratio
=8.4*10^6*20%*25%
=$420,000

Additional funds= assets-liability-retained earnings
=1040000-405600-420000
=$214,400

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