Question

A new market opportunity has opened, and you expect that you will be able to double your sales in 2019. Assume that COGS, operating expenses, current assets and current liabilities maintain the same PERCENTAGE OF SALES as in 2018. Assume no new fixed assets, nothing from 2018 was fully depreciated, and you will have the same dividend policy in 2019 as you did in 2018.

Use the financial statements below to determine if additional funds will be needed, and if so, how much.

Income Statement
	2018	2019
Sales	10000
COGS	4000
Gross Profit
Operating Expenses	2000
Depreciation	250
Interest	750
Pre Tax Profit	3000
Tax at 33.33 % (round to nearest $1)
Net Profit
Dividends	0
BalanceSheet
Current Assets	25000
Fixed Assets	15000
Total Assets
Current Liabilities	17000
LongTerm Debt	3000
Common Stock	7000
Retained Earnings	13000
Total Liabilities & Equity (round to nearest $1)

a- No Additional Funds Needed

b- $3,333

c- $65,000

d- $8,000

Answer 1

As given, sales have been increased by two times. And also COGS, Operating expenses, Current assets & Current liabilities have been increased with the proportion of sales. As mentioned below in the table, if we bring $3333(65000-61667), then the balance sheet will tally.

Therefore, $3333 additional funds is to be needed.

Assumption: No repayment of debt and no depreciation

Income Statement
	2018	% of Sales	Computation	2019
Sales	10000		10000*2	20000
COGS	4000	40	20000*40%	8000
Gross Profit	6000			12000
Operating Expenses	2000	20	20000*20%	4000
Depreciation	250			250
Interest	750			750
Pre tax profit	3000			7000
Tax @ 33.33%	1000			2333
Net Profit	2000			4667
Dividends	0			0
Balance Sheet
Current Assets	25000	250	50000	50000
Fixed Assets	15000			15000
Total Assets	40000			65000
Current Liabilities	17000	170	20000*170%	34000
Long term debt	3000			3000
Common stock	7000			7000
Retained earnings	13000		13000+4667	17667
Total liabilities & Equity	40000			61667