Douglass Enterprises Income Statement for the Present Year

   Sales

 $4,840

   Costs

 $4,120

   Taxable Income

 $720

   Taxes

 $245

   Net Income

 $475

   Dividends

 $190

   Addition to ret. earnings

 $285

  

 

  Douglass Enterprises Balance Sheet for the Present Year

   Cash

 $1,010

 Accounts payable

 $536

   Accounts rec.

 $302

 Notes payable

 $1,500

   Inventory

 $361

 Current liabilities

 $2,036

   Current assets

 $1,673

 Long-term debt

 $1,200

   Fixed assets

 $5,200

 Common stock

 $3,000

    

  

 Retained earnings

 $637

   Total assets

 $6,873

 Total liabilities. & 

 equity

 $6,873

  

Assets, accounts payable and costs are proportional to sales. Debt and equity are not.

The sales of Douglass Enterprises are expected to increase by 10% next year. The debt-equity ratio and the dividend payout ratio are to be held constant. Currently the firm is producing at 88% of capacity. What is the required increase in net fixed assets?

Answer rating: 100% (QA)

First lets find out the current level of sales Sales 4840 Next we can use the information given to f... View the full answer