Jones Company sales last year were $25 million and its total assets were $8 million. Accounts payable were $2 million and common stock and retained earnings were $5 million. Jones sales are forecasted to be $30 million this year, earnings after tax are expected to be 3% of sales, and dividends of $250,000 are expected to be paid. Assuming that the ratio of assets to sales and current liabilities to sales remain the same this year as last year, determine the amount of additional financing required.

Question

Quizplus · Accepted Answer

Solution:
AFN = {(A/S) DS - (CL/S) DS} - [CF - D]
= [($8,000,000/$25,000,000)($5,000,000)- ($2,000,000/$25,000,000)($5,000,000] - [0.03 * $30,000,000 - $250,000] = $550,000

Jones Company Sales Last Year Were $25 Million and Its