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Alisiya [41]
3 years ago
14

Wilson is currently operating at maximum capacity. The firm has a net income of $2,250, total assets of $24,600, long-term debt

of $9,800, accounts payable of $2,700, dividends of $900, and total equity of $12,100. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent?
Business
1 answer:
Step2247 [10]3 years ago
6 0

Answer:

As a result in the increase in sales, the firm debt will decrease by 187.5 dollars

Explanation:

income of 2,250

dividends of 900

<em><u>payout ratio:</u></em> 900/2,250 = 0.4

income will increase by 5%

2,250 x 1.05 = 2,362.5‬

retained earnings break even:

2,362.5 x ( 1 - 0.4) = 1,417.5

increase in assets:

24,600 x 0.05 = 1,230

now we post this into the accounting equation:

Assets = liab+ equity

+1,230 = liab + 1,417.5

liab = -187.5

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