King County Enterprises projects that it will need $100 million in total assets to meet the sales projection of $130 million.The pro forma balance sheet shows accounts payable of $16 million, accrued expenses of $4 million, long-term debt of $20 million and equity of $65 million.If King decides to meet discretionary financing needs with five-year notes payable, how much will it need to borrow?
A)$20 million
B)$0, the firm has excess funds
C)$10 million
D)Cannot be calculated without knowing the net profit margin.

Question

Quizplus · Accepted Answer

King County Enterprises needs $100 million in total assets to meet its sales projection. The sum of its financing sources (accounts payable of $16 million, accrued expenses of $4 million, long-term debt of $20 million, and equity of $65 million) equals $105 million, which exceeds the required $100 million, indicating the firm has excess funds of $5 million and does not need to borrow additional funds.

King County Enterprises Projects That It Will Need $100 Million