Wolf Den Craft Beers projects that it will need $50 million in total assets to meet the sales projection of $65 million. The pro forma balance sheet shows accounts payable, $8 million, accrued expenses, $2 million, long-term debt, $10 million and equity, $25 million. If Wolf Den decides to meet discretionary financing needs with 5 year notes payable, how much will it need to borrow?
A) $10 million
B) $0, the firm will have excess funds
C) $5 million.
D) Cannot be calculated without knowing the net profit margin.

Question

Quizplus · Accepted Answer

To determine the discretionary financing needs, we need to subtract the total assets from the sum of current liabilities, long-term debt, and equity.

Discretionary Financing Needs = Total Assets - (Accounts Payable + Accrued Expenses + Long-term Debt + Equity)

Discretionary Financing Needs = $50 million - ($8 million + $2 million + $10 million + $25 million)

Discretionary Financing Needs = $5 million

Therefore, Wolf Den Craft Beers will need to borrow $5 million through 5 year notes payable to meet its discretionary financing needs.

Wolf Den Craft Beers Projects That It Will Need $50