Suppose that Gyp Sum Industries currently has the balance sheet shown below, and

Question

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $10.8 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $8.8 million next year.

ASSETS LIABILITY AND EQUITY

Current assests 2,544,000                                   Current Liabilities 2,423,520

Fixed assets 4,800,000                                         Long-term debt 1,900,000

Total Assets 7,344,000                                         Equity 3,020,000

                                                                         Total Liabilities and equity $7,344,000

If all the assets and current labilities are expected to shrink with sales, what amount of additional funds ill Gyp Sum Industries nee from external sources to fund the expected growth. ( Enter answer n dollars ot million. Negative amount should be indicted by a minus sign). What are the additional funds needed

Explanation / Answer

Projected Income statement

Projected Balance sheet

it is prudent to set off long term borrowing and external fund requirement

Particulars Year 0 Year 1 Sales 10.8 8.8 Profit margin @ 30% 3.24 2.64 Retention ratio @ 20% 0.648 0.528

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