A firm has the following balance sheet at the end of this year. Next year it expects sales to increase 50% over this year's level of $9,000, and anticipates retaining $2,000 of its earnings. $\begin{array}{lclc}
\text { Cash } & \$ 4,000 & \text { Accountspayable } & \$ 2,500 \
\text { Accountsreceivable } & 3,000 & \text { Accrued expenses payable } & 1,000 \
\text { Inventories } & 2,000 & \text { Longterm debt } & 6,000 \
\text { Net fixed assets } & 12,500 & \text { Common stock } & 8,500\&&\text { Retained earnings } & 3,500\\text { Total asssets }&\$21,500&\text { Total liabilities and capjital }&\$21,500
\end{array}$ According to the unmodified percentage of sales method, the amount of external funds needed next year will be:

Question

Quizplus · Accepted Answer

The increase in sales is 50%, so sales will be $13,500. Assets and liabilities are assumed to increase proportionally with sales. The increase in assets is $21,500 * 50% = $10,750. The increase in liabilities and retained earnings is $2,000 (retained earnings) + ($2,500 + $1,000) * 50% = $3,750. Therefore, external funds needed = $10,750 - $3,750 = $7,000.

A Firm Has the Following Balance Sheet at the End