XYZ Company has assets that are traditionally 85% of sales,and its liabilities traditionally are 50% of sales.Sales for this year are $50,000 and sales for next year are projected to be $150,000 with a profit margin of 10%.No owner payout will be taken.Using the percentage of sales method,XYZ will need of additional financing.
A)$15,000
B)$70,000
C)$20,000
D)$52,500
E)No financing is required.

Question

Quizplus · Accepted Answer

The increase in sales is $100,000 ($150,000 - $50,000). The increase in assets required is 85% of $100,000, which is $85,000. The increase in liabilities is 50% of $100,000, which is $50,000. The profit is 10% of $150,000, which is $15,000. Therefore, the additional financing needed is $85,000 - $50,000 - $15,000 = $20,000.

XYZ Company Has Assets That Are Traditionally 85% of Sales,and