8. Bottling\'s December 31st balance sheet is given below: Cash Accounts receiva

Question

8. Bottling's December 31st balance sheet is given below: Cash Accounts receivable Inventory s 10 25 40 75 Accounts payable Notes payable Accrued wages and taxes Long-term debt Common equity S 15 20 15 30 70 Net fixed assets Total liabilities and equity Total assets $150 $150 Sales during the past year were $100, and they are expected to rise by 50 percent to $150 during next year. Also, during last year fixed assets were being utilized to only 85 percent of capacity (excess capacity). Assume that profit margin will remain constant at 5 percent and that the company will continue to pay out 60 percent of its earmings as dividends. To the nearest whole dollar, what amount of nonspontaneous, additional funds will be needed during the next year (use proforma method)? a. $57 b. $51 c. $36 $40 e $48

Explanation / Answer

Last Year Basis of projection Next Year Cash 10 10% of sales 15 Accounts receivable 25 25% of sales 38 Inventory 40 40% of sales 60 Current assets 75 113 Net fixed assets 75 Addition = 85%*1.5-100 = 27.5% 96 TOTAL ASSETS 150 208 Accounts payable 15 15% of sales 23 Notes payable 20 20 Accrued wages and taxes 15 15% of sales 23 Current liabilities 50 65 Long term debt 30 30 Common equity 70 +3 73 150 168 EFN 40 Answer: Option [d] Sales 100 +50% 150 Profit (5%) 5 8 Dividend (60%) 3 5 Retained earnings 2 3

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