Question

At year-end 2015, total assets for Shome, Inc., amounted to $1.2 million and accounts payable were $375,000. Sales, which totaled $2.5 million in 2015, are expected to increase by 25 percent in 2016. Total assets and accounts payable are proportional to sales, and that relationship will be maintained in the future. Shome typically has no current liabilities other than accounts payable. The value of its common stock amounted to $425,000 in 2015, and retained earnings were $295,000. Shome plans to sell new common stock in the amount of $75,000. The firm’s profit margin on sales is 6 percent, and 40 percent of earnings will be paid out as dividends.
a. What was Shome’s total debt in 2015?
b. How much new, long-term debt financing will be needed in 2016?



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  • CreatedNovember 24, 2014
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