Given the following information: current assets = $400; fixed assets = $500; accounts payable = $100; notes payable = $45; long-term debt = $455; equity = $300; sales = $450; costs = $400; tax rate = 34%. Suppose that current assets, costs, and accounts payable maintain a constant ratio to sales. If the firm is producing at 80% capacity, what is the total external financing needed if sales increase 25%? Assume the firm pays no dividends.

Question

Quizplus · Accepted Answer

The firm is operating at 80% capacity, so it can increase sales by 25% without needing additional fixed assets. The increase in sales will require proportional increases in current assets and accounts payable. The external financing needed is calculated by finding the increase in current assets minus the increase in accounts payable, which results in $33.75.

Given the Following Information: Current Assets = $400; Fixed Assets