ICU has current assets of $800,000 and net fixed assets of $1,400,000. The firm expects its sales to climb 25 percent next year from its current level of $3,500,000. ICU's only current liability is accounts payable of $1,200,000. If both current assets and current liabilities will increase proportionately with sales, what additional financing will be needed by ICU next year? Assume ICU has a net profit margin of 6 percent. An increase in net fixed assets of $500,000 will be required. The firm pays out 50 percent of its earnings as dividends.
A) $400,000
B) $358,750
C) $178,750
D) $268,750

Question

Quizplus · Accepted Answer

Solution:
AFN = $500,000 + $800,000(0.25) - $1,200,000(0.25) - $3,500,000 (1.25)(0.06)(0.5)
= $268,750

ICU Has Current Assets of $800,000 and Net Fixed Assets