Frisch Fish Corp expects net income next year to be $750,000. Inventory and accounts receivable will have to be increased by $650,000 to accommodate this sales level. Frisch will pay dividends of $300,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

Question

Quizplus · Accepted Answer

Frisch Fish Corp will need to finance the increase in inventory and accounts receivable totaling $650,000, and pay out dividends of $300,000, for a total financing need of $950,000. However, the expected net income of $750,000 will contribute to covering some of these financing needs, leaving a remaining external financing need of $200,000 (i.e. $950,000 - $750,000 = $200,000). Therefore, the correct answer is C) $200,000.

Frisch Fish Corp Expects Net Income Next Year to Be