With sales of $450,000, MJM, Inc. is operating at capacity but management anticipates that sales will grow 20 percent during the coming year. The company earns 8 percent on sales and distributes 50 percent of earnings to stockholders. Its current balance sheet is as follows:

MJM, Incorporated Balance Sheet as of 12/31/X0
Assets		Liabilities and Equity
Cash	$	8,500		Accounts payable	$	50,000
Accounts receivable		33,000		Accruals		41,000
Inventory		73,000		Notes payable		0
Current assets		114,500		Current liabilities		91,000
Plant and equipment		110,000		Common stock		60,000
				Retained earnings		73,500
Total assets	$	224,500		Total liabilities and equity	$	224,500

In addition to cash, which assets and liabilities will increase with the increase in sales and by how much if the percent of sales is used to forecast the increases? If assets or liabilities does not change enter zero as a forecasted change. Do not round intermediate calculations. Round your answers to the nearest dollar.

Assets and Liabilities	Change	Forecasted change
Cash	-Select-IncreaseNo changeItem 1	$
Accounts receivable	-Select-IncreaseNo changeItem 3	$
Inventory	-Select-IncreaseNo changeItem 5	$
Plant and equipment	-Select-IncreaseNo changeItem 7	$
Accounts payable	-Select-IncreaseNo changeItem 9	$
Accruals	-Select-IncreaseNo changeItem 11	$
Notes payable	-Select-IncreaseNo changeItem 13	$

How much external finance will the firm need? Round your answer to the nearest dollar.

$

If cash did not increase but could be maintained at $8,500, what impact would the lower cash have on the firm's need for external finance? Round your answer to the nearest dollar. Enter your answer as a positive value.

If cash remained at $8,500 the need for external funds would be -Select-increaseddecreasedItem 16 by $ .

If the firm distributed 25 percent (2) instead of 50 percent (1) of its earnings, would it need external finance?

The net increase in retained earnings comparing (2) with (1) is $ . It -Select-wouldwould notItem 19 cover the external funds needed.

Construct a new balance sheet assuming that cash increases with the increase in sales and the firm distributes 50 percent of its earnings to stockholders. If the firm needs external finance, acquire the funds by issuing a short-term note to a commercial bank. Do not round intermediate calculations. Round your answers to the nearest dollar.

MJM, Incorporated Balance Sheet as of 12/31/X1
Assets		Liabilities and Equity
Cash	$			Accounts payable	$
Accounts receivable				Accruals
Inventory				Notes payable
Current assets				Current liabilities
Plant and equipment				Common stock
				Retained earnings
Total assets	$			Total liabilities and equity	$

Answer rating: 100% (QA)

Answer To forecast the changes in assets and liabilities with a 20 increase in sales Cash No change ... View the full answer