Table 4.5
A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2015. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions.
(a) The firm estimates sales of $1,000,000.
(b) The firm maintains a cash balance of $25,000.
(c) Accounts receivable represents 15 percent of sales.
(d) Inventory represents 35 percent of sales.
(e) A new piece of mining equipment costing $150,000 will be purchased in 2010.
Total depreciation for 2010 will be $75,000.
(f) Accounts payable represents 10 percent of sales.
(g) There will be no change in notes payable, accruals, and common stock.
(h) The firm plans to retire a long term note of $100,000.
(i) Dividends of $45,000 will be paid in 2015.
(j) The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2014
-If General Talc Mines cannot raise the external financing required through traditional credit channels, the firm may ________. (See Table 4.5)
A) increase sales
B) purchase additional fixed assets to raise productivity
C) sell common stock
D) factor accounts receivable

Question

Table 4.5
A financial manager at General Talc Mines has gathered the financial data essential to prepare a pro forma balance sheet for cash and profit planning purposes for the coming year ended December 31, 2015. Using the percent-of-sales method and the following financial data, prepare the pro forma balance sheet in order to answer the following multiple choice questions.
(a) The firm estimates sales of $1,000,000.
(b) The firm maintains a cash balance of $25,000.
(c) Accounts receivable represents 15 percent of sales.
(d) Inventory represents 35 percent of sales.
(e) A new piece of mining equipment costing $150,000 will be purchased in 2010.
Total depreciation for 2010 will be $75,000.
(f) Accounts payable represents 10 percent of sales.
(g) There will be no change in notes payable, accruals, and common stock.
(h) The firm plans to retire a long term note of $100,000.
(i) Dividends of $45,000 will be paid in 2015.
(j) The firm predicts a 4 percent net profit margin.
Balance Sheet
General Talc Mines
December 31, 2014 
-If General Talc Mines cannot raise the external financing required through traditional credit channels, the firm may ________. (See Table 4.5)
A) increase sales 
B) purchase additional fixed assets to raise productivity 
C) sell common stock 
D) factor accounts receivable

Quizplus · Accepted Answer

The best choice for General Talc Mines to raise external financing would be to sell common stock, as it is the only option listed that involves bringing in additional funds from outside the company. Increasing sales or purchasing additional fixed assets would require internal funds and may not be feasible in the short run. Factoring accounts receivable would also free up cash, but it would not provide new external financing. Retiring a long-term note and paying dividends would decrease funding rather than increasing it.

Table 4.5 a Financial Manager at General Talc Mines Has Gathered the Gathered