Question

ECG Monitors is forecasting that sales next year will be $8,640,000, a 20 percent increase over current sales. ECG has total assets of $3,840,000 and all assets will increase proportionately with sales. Of the current liabilities, only accounts payable (now $740,000) will increase with sales. What total financing will be needed by ECG to support the expected sales increase?

Answer 1

Answer:

$ 620,000

Explanation:

The increase is assets is the amount the firm will need to finance:

Current Assets: 3,840,000

Forecast Assets: 3,840,000 x ( 1 + 20%) = 4,608,000

Assets to finance: 4,608,000 - 3,840,000 = 768,000

A portion of this will be financed by the supplier as the accounts payable will increase:

Curent Account Payable: 740,000

Forecast A/P: 740,000 x (1 + 20%) =  888,000

Financiation provided by the supplier: 888,000 - 740,000 = 148,000

The rest will requiere addtional financiation through equity or other means.

Total Financiation needed: 768,000 - 148,000 = 620,000