Jams and Jellies has net fixed assets of $879,000,long-term debt of $368,000,current liabilities of $136,000,and net working capital of $13,400.The retention ratio is 50 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $748,000 are projected to increase by 3 percent?
A)$8,212.12
B)$11,506.60
C)$6,390.18
D)$1,387.58
E)$4,429.24

Question

Quizplus · Accepted Answer

Current total assets = $13,400 + $136,000 + $879,000 = $1,028,400
Projected total assets = 1.03 × $1,028,400 = $1,059,252
Projected current liabilities = 1.03 × $136,000 = $140,080
Projected long-term debt = $368,000 (no change)
Current stockholders' equity = $1,028,400 - $136,000 - $368,000 = $524,400
Projected stockholders' equity = $524,400 + (1.03 × $748,000 × 0.058 × 0.50)= $546,742.76
EFN = $1,059,252 - $140,080 - $368,000 - $546,742.76 = $4,429.24

Jams and Jellies Has Net Fixed Assets of $879,000,long-Term Debt