home / study / business / operations management / questions and answers / the company is about to embark on an advertising ... Question The company is about to embark on an advertising campaign, which is expected to raise sales from the current level of $5 million to $7 million by the end of next year. The firm is currently operating at a full capacity and will have to increase its investment in both current and fixed assets to support the projected level of new sales. In fact the firm estimates taht both catergories of assets will rise in direct proportion to the projected increase in sales. The firms net profits were 6 percent of the current year's sales but are expected to rise to 7 percentof next years sales. To help support its anticipated growth in asset needs next year, the firms has suspended plans to pay cash dividents to its stockholders. In past years a $1.50 per share dividend has been paid annually. Armadillo's accounts payable and accrued expenses are expected to vary directly with sales. In addition, notes payable will be used to supply the unds needed to fiannce next years' operations that are not forthcoming from other sources. A. Filll in the tabel and project the firms needs for discretionary financing. Use notes payable as the balancing entry for future discretionary financing needs. B. Compare Armadillo's current ratio and deb ration (total liabilites / total assets) befroe the growth in sales and afer. What was the effect of the expanded sales on these two dimensions of Armadillo's financial condition? C. What difference, if any would have resulted if Armadillo's sales had risen to $6 million in 1 year and $7 million only after 2 years? Discuss only; no calcuations are required..