XYZ Company has assets that are traditionally 75% of sales,and its liabilities traditionally are 20% of sales.Sales for this year are $100,000 and sales for next year are projected to be $200,000 with a profit margin of 8%.The owners take a 60% payout.Using the percentage of sales method,XYZ will need of additional financing.
A)$50,000
B)$48,600
C)$70,000
D)$68,400
E)No new financing is required.

Question

Quizplus · Accepted Answer

The increase in sales is $100,000. Assets will increase by 75% of this, which is $75,000. Liabilities will increase by 20% of the increase in sales, which is $20,000. The profit is 8% of $200,000, which is $16,000. After a 60% payout, retained earnings are $6,400. Additional financing needed is $75,000 (increase in assets) - $20,000 (increase in liabilities) - $6,400 (retained earnings) = $48,600.

XYZ Company Has Assets That Are Traditionally 75% of Sales,and