Wagner Industrial Motors,which is currently operating at full capacity,has sales of $29,000,current assets of $1,600,current liabilities of $1,200,net fixed assets of $27,500,and a 5 percent profit margin.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 4.5 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)-$259.75
B)-$201.19
C)$967.30
D)$1,099.08
E)$1,515.25

Question

Quizplus · Accepted Answer

Projected assets = ($1,600 + $27,500) × 1.045 = $30,409.50Projected liabilities = $1,200 × 1.045 = $1,254Current equity = $1,600 + $27,500 - $1,200 = $27,900Projected increase in retained earnings = $29,000 × .05 × 1.045 = $1,515.25Equity funding need = $30,409.50 - $1,254 - $27,900 - $1,515.25 = -$259.75

Wagner Industrial Motors,which Is Currently Operating at Full Capacity,has Sales