Question

Wagner Industrial Motors, which is currently operating at full capacity, has sales of $2,350, current assets of $690, current liabilities of $380, net fixed assets of $1,540, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 10 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year? Compute current total equity, projected assets, liabilities, change in equity, additional equity funding, and answer the following two questions:

Answer 1

Answer:

The required financial needed would be "$55.75". The further explanation is given below.

Explanation:

The given values are:

Current assets

= $690

Fixed assets

= $1540

Project assets = (Current assets + Fixed assets) × 1.10

                        = $(690+1540)\times 1.10$

                        = $2453$ ($)

Projected liabilities = $380\times 1.10$

                                 = $418$ ($)

Current equity = Current assets + Fixed assets + Current liabilities

                         = $690+1540-380$

                         = $1850$ ($)

Increased project in retaired earnings will be:

= $2350\times 5 \ percent\times 1.10$

= $129.25$ ($)

Now,

Equity financial needed = Projected assets - Project liabilities - current equity - Projected increase

                                        = $2453-481-1850-129.25$

                                        = $55.75$ ($)