A firm has the following balance sheet as of December 31, 2008: ASSET LIABILITIES AND EQUITY Cash
Question:
A firm has the following balance sheet as of December 31, 2008:
ASSET LIABILITIES AND EQUITY
Cash $100 Accounts Payable $300
Accounts Receivable 300 Long-term debt 800
Inventory 400 Equity 400
Plant 700 Retained Earnings 0
$1,500 $1,500
Currently sales are $4,000 with a net profit margin of 15 percent; dividend payout ratio is 40%. Management expects sales to increase to $5,000 and wants to determine if the firm will need external financing to cover this expansion.
Construct a forecasted balance sheet for sales of $5,000 using the percent of sales technique of forecasting assets and liabilities that spontaneously vary with sales. Assume that cash does not increase with the increase in sales. If this assumption were not made, would your answer be different?
Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick