Rework Problem 8 assuming that Genatron Manufacturing expects its sales to increase by 20 percent in 2021.

Question:

Rework Problem 8 assuming that Genatron Manufacturing expects its sales to increase by 20 percent in 2021.  What is the amount of external financing needed?


Data from Problem 8

Genatron Manufacturing expects its sales to increase by 10 percent in 2021. Estimate the firm’s external financing needs by using the percent-of-sales method for the 2020 data.  Assume that no excess capacity exists and that one-half of the 2021 net income will be retained in the business.


Financial statement of Genatron Manufacturing.

Balance sheet

ASSETS

2020

2019

Cash

$40,000

$50,000

Accts. receivable

260,000

200,000

Inventory

500,000

450,000

Total current assets

800,000

700,000

Fixed assets, net

400,000

300,000

Total assets

LIABILITIES AND EQUITY

$1,200,000

$1,000,000

Accts. payable

$170,000

$130,000

Bank loan

90,000

90,000

Accruals

70,000

50,000

Total current liabilities

330,000

270,000

Long-term debt, 12%

400,000

300,000

Common stock, $10 par

300,000

300,000

Capital surplus

50,000

50,000

Retained Earnings


120,000

80,000

Income statement

2020

2019

Net sales

$1,500,000

$1,300,000

Cost of goods sold

900,000

780,000

Gross profit

600,000

520,000


Expenses: general and administrative

150,000

150,000


Marketing

150,000

130,000


Depreciation

53,000

40,000


Interest

57,000

45,000


Earnings before taxes

190,000

155,000


Income taxes

76,000

62,000


Net income

$114,000

$93,000


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