Calculate the external ﬁnancing needed given the following information: current sales = $275,000; current sales capacity = 75%; current ﬁxed assets = $40,000; projected future sales = $475,000.
A) $11,818
B) $51,818
C) $12,818
D) $52,818
E) $60,818

Question

Quizplus · Accepted Answer

To calculate the external financing needed, first determine the sales growth factor: $475,000 / $275,000 = 1.727. Since the current capacity is 75%, the firm can support sales up to $275,000 / 0.75 = $366,667 with existing fixed assets. The additional sales ($475,000 - $366,667 = $108,333) require additional fixed assets. The fixed assets to sales ratio is $40,000 / $275,000 = 0.1455. Thus, additional fixed assets needed are $108,333 * 0.1455 = $15,750. Subtract the current fixed assets ($40,000) from the total required ($55,750) to get the external financing needed: $15,750 - $40,000 = $11,818.

Calculate the External ﬁNancing Needed Given the Following Information: Current