In 2018, Mango Corporation had net income of $5 million on sales of $50 million.The 2018 balance sheet showed current liabilities of $12 million, long-term debt of $18 million and equity of $45 million.The sales forecast for 2017 is $54 million.If Mango pays no dividends, what is the forecasted increase or decrease in equity at the end of 2019?
A)$49.5 million
B)$ 4.5 million
C)$5.4 million
D)$(5.4)million

Question

Quizplus · Accepted Answer

First, we need to calculate the net income margin of the company for 2018:

Net Income Margin = Net Income / Sales 
Net Income Margin = $5 million / $50 million 
Net Income Margin = 0.1 or 10%

Now, we can use the net income margin to forecast the net income for 2019:

Forecasted Net Income = Net Income Margin x Forecasted Sales 
Forecasted Net Income = 0.1 x $54 million 
Forecasted Net Income = $5.4 million

Next, we can calculate the forecasted equity at the end of 2019:

Forecasted Equity = Equity + Forecasted Net Income 
Forecasted Equity = $45 million + $5.4 million 
Forecasted Equity = $50.4 million

Finally, we can calculate the forecasted increase in equity:

Forecasted Increase in Equity = Forecasted Equity - Equity 
Forecasted Increase in Equity = $50.4 million - $45 million 
Forecasted Increase in Equity = $5.4 million

Therefore, the forecasted increase in equity at the end of 2019 is $5.4 million.

In 2018, Mango Corporation Had Net Income of $5 Million