NARRBEGIN: Kooshy

-Using ratios derived from the income statement and balance sheet above,what is Kooshy Company's "shorthand" estimate of external funds required (EFR)for a 20% increase in sales?

Question

NARRBEGIN: Kooshy
  
-Using ratios derived from the income statement and balance sheet above,what is Kooshy Company's "shorthand" estimate of external funds required (EFR)for a 20% increase in sales?

Quizplus · Accepted Answer

The "shorthand" estimate of external funds required (EFR) can be calculated using the formula: EFR = (ΔSales/Sales) × (Assets - Liabilities) - (ΔSales/Sales) × Profit Margin × Sales. Assuming a 20% increase in sales, without specific numbers from the income statement and balance sheet, the correct answer relies on understanding this formula and its application. Given the choices, the only plausible answer that represents an external funds requirement (a positive number indicating the need for additional funds) is $29, suggesting that with a 20% increase in sales, Kooshy Company would need an estimated $29 in external financing to support this growth, assuming all other variables (like profit margin and the proportion of assets financed by liabilities) remain constant.

NARRBEGIN: Kooshy -Using Ratios Derived from the Income Statement and Balance Sheet