A firm has the following balance sheet. It expects sales to increase 30% over the previous year's level of $9,000, and anticipates retaining $3,000 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 will be:

Question

Quizplus · Accepted Answer

The unmodified percentage of sales method assumes that the percentage of sales devoted to each asset category will remain the same as in the previous year. Therefore, the amount of external funds needed is equal to the increase in sales multiplied by the percentage of sales devoted to total assets. In this case, the increase in sales is $9,000 * 0.30 = $2,700. The percentage of sales devoted to total assets is $21,500 / $9,000 = 2.39. Therefore, the amount of external funds needed is $2,700 * 2.39 = $6,450.

A Firm Has the Following Balance Sheet According to the Unmodified Percentage of Sales Method, the Amount