Urban's, which is currently operating at full capacity, has sales of $47,000, current assets of $5,100, current liabilities of $6,200, net fixed assets of $51,500, and a profit margin of 5 percent. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 3 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?
A) −$908.50
B) −$722.50
C) $967.30
D) $1,698.00
E) $1,512.00

Question

Quizplus · Accepted Answer

The correct answer is A.The firm's net income is $2,350 (5% of $47,000). The firm's total assets are $56,600 ($5,100 + $51,500). The firm's total liabilities are $6,200. The firm's equity is $50,400 ($56,600 - $6,200). The firm's sales are expected to increase by 3% next year, to $48,410. The firm's total assets are expected to increase by 3% next year, to $58,338. The firm's total liabilities are expected to increase by 3% next year, to $6,386. The firm's equity is expected to increase by 3% next year, to $51,952. The firm's additional equity financing required for next year is $1,552 ($51,952 - $50,400).

Urban's, Which Is Currently Operating at Full Capacity, Has Sales