A firm has the following balance sheet as of XX/XX/XX: $\begin{array}{lclc}\text { Assets }&&\text { Liabilities and Equity }\\hline
\text { Cash } & \$ 100 & \text { Accounts payable } & \$ 300 \
\text { Accounts receivable } & 300& \text { Long-term debt } & 800 \
\text { Inventory } & 400& \text { Equity } & 400 \
\text { Plant } & 700& \text { Retained earnings } & 0\&\$1,500&&\$1,500
\end{array}$
Currently sales are $4,000 with a net profit margin of 15 percent. Management expects sales to increase to $5,000 and wants to determine if the firm will need external financing to cover this expansion. Construct a forecasted balance sheet for sales of $5,000 using the percent of sales technique of forecasting assets and liabilities that spontaneously vary with sales. If the firm needs funds, these funds may be acquired through a bank. If the firm has excess funds, they should be invested in marketable securities. Assume that cash does not increase with the increase in sales. If this assumption were not made, would your answer be different?

Question

A firm has the following balance sheet as of XX/XX/XX: $\begin{array}{lclc}\text { Assets }&&\text { Liabilities and Equity }\\hline
\text { Cash } & \$ 100 & \text { Accounts payable } & \$ 300 \
\text { Accounts receivable } & 300& \text { Long-term debt } & 800 \
\text { Inventory } & 400& \text { Equity } & 400 \
\text { Plant } & 700& \text { Retained earnings } & 0\&\$1,500&&\$1,500
\end{array}$ ​
Currently sales are $4,000 with a net profit margin of 15 percent. Management expects sales to increase to $5,000 and wants to determine if the firm will need external financing to cover this expansion. Construct a forecasted balance sheet for sales of $5,000 using the percent of sales technique of forecasting assets and liabilities that spontaneously vary with sales. If the firm needs funds, these funds may be acquired through a bank. If the firm has excess funds, they should be invested in marketable securities. Assume that cash does not increase with the increase in sales. If this assumption were not made, would your answer be different?

Quizplus · Accepted Answer

The Answer of A firm has the following balance sheet as of XX/XX/XX: $\begin{array}{lclc}\text { Assets }&&\text { Liabilities and Equity }\\hline
\text { Cash } & \$ 100 & \text { Accounts payable } & \$ 300 \
\text { Accounts receivable } & 300& \text { Long-term debt } & 800 \
\text { Inventory } & 400& \text { Equity } & 400 \
\text { Plant } & 700& \text { Retained earnings } & 0\&\$1,500&&\$1,500
\end{array}$ ​
Currently sales are $4,000 with a net profit margin of 15 percent. Management expects sales to increase to $5,000 and wants to determine if the firm will need external financing to cover this expansion. Construct a forecasted balance sheet for sales of $5,000 using the percent of sales technique of forecasting assets and liabilities that spontaneously vary with sales. If the firm needs funds, these funds may be acquired through a bank. If the firm has excess funds, they should be invested in marketable securities. Assume that cash does not increase with the increase in sales. If this assumption were not made, would your answer be different?

A Firm Has the Following Balance Sheet as of XX/XX/XX