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Contact [7]
3 years ago
15

Wagner Industrial Motors, which is currently operating at full capacity, has sales of $2,330, current assets of $670, current li

abilities of $360, net fixed assets of $1,520, 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
Business
1 answer:
zimovet [89]3 years ago
5 0

Answer: $81.85

Explanation:

Additional Equity financing needed = Projected Assets - Projected liabilities  - Projected increase in retained earnings - Current equity

Projected Assets = (Current Assets + Fixed Assets) * ( 1 + growth rate)

=  ( 670 + 1,520) * ( 1.10)

= $2,409

Projected Liabilities = 360 * 1.1

= $369

Projected Increase in Retained earnings

= Sales * ( 1 + growth rate ) * profit margin

= 2,330 * 1.10 * 5%

= $128.15

Current Equity = Assets - Liabilities

= 670 + 1,520 - 360

= $1,830

Additional Equity financing needed next year= 2,409 - 369 - 128.15 - 1,830

= $81.85

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