Major Manuscripts, Inc. is currently operating at 85 percent of capacity. All costs and net working capital vary directly with sales. The tax rate, the profit margin, and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 15 percent?

Question

Quizplus · Accepted Answer

Projected current assets = $9,190 F1F1F1S1F1F1F10 1.15 = $10,568.50Projected capacity level = 0.85 F1F1F1S1F1F1F10 1.15 = 0.9775 (Will not exceed excess capacity.)Projected fixed assets = $11,400Projected accounts payable = $3,300 F1F1F1S1F1F1F10 1.15 = $3,795Current long-term debt = $2,780Current common stock = $10,000Projected retained earnings = $4,510 + [($2,376 - $950) F1F1F1S1F1F1F10 1.15] = $6,149.90Additional debt required = $10,568.50 + $11,400 - $3,795 - $2,780 - $10,000 - $6,149.90 = -$756