Dexter's has annual sales of $53,800, current assets of $18,900, and net working capital of $2,800. Assume this firm is operating at full capacity and that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma current liabilities value for next year if sales are projected to increase by 7.5 percent?
A) $13,650
B) $17,308
C) $19,121
D) $14,248
E) $16,810

Question

Quizplus · Accepted Answer

The pro forma current liabilities value is calculated as follows:Current liabilities = Net working capital + (Sales * Debt-equity ratio)Given that net working capital, sales, and debt-equity ratio are constant, the pro forma current liabilities value will increase in proportion to the increase in sales.Sales are projected to increase by 7.5%, so the pro forma current liabilities value will increase by 7.5%.Current liabilities = $2,800 + (1.075 * $18,900) = $17,308

Dexter's Has Annual Sales of $53,800, Current Assets of $18,900