Question

In: Finance

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for...

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $9.1 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $7.1 million next year.

Assets Liabilities and Equity
Current assets $ 469,000 Current liabilities $ 859,040
Fixed assets 4,900,000 Long-term debt 1,950,000
Equity 2,559,960
Total assets $ 5,369,000 Total liabilities and equity $ 5,369,000

If all assets and current liabilities are expected to shrink with sales, what amount of additional funds will Gyp Sum need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)  

Solutions

Expert Solution

Answer:

Additional Fund Needed = Projected Increase in Assets – Spontaneous Increase in Liabilities – Increase in Retained Earnings

Change in Sales = $7,100,000 - $9,100,000
Change in Sales = -$2,000,000

Expected Increase in Assets = Total Assets / Current Sales * Change in Sales
Expected Increase in Assets = 5,369,000 / 9,100,000 * -2,000,000
Expected Increase in Assets = -$1,180,000

Spontaneous Increase in Liabilities = Current Liabilities / Current Sales * Change in Sales
Spontaneous Increase in Liabilities = 859,040 / 9,100,000 * -2,000,000
Spontaneous Increase in Liabilities = -$188,800

Projected Increase in Retained Earning = Expected Sales * Profit Margin * Retention ratio
Projected Increase in Retained Earning = $7,100,000 * 0.20 * 0.25
Projected Increase in Retained Earning = $355,000

Additional Fund Needed = -$1,180,000 – (-$188,800) - $355,000
Additional Fund Needed = -$1,346,200


Related Solutions

Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for...
Suppose that Gyp Sum Industries currently has the balance sheet shown below, and that sales for the year just ended were $10.9 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $8.9 million next year. Assets Liabilities and Equity Current assets $ 2,621,000 Current liabilities $ 2,557,140 Fixed assets 4,900,000 Long-term debt 1,950,000 Equity 3,013,860 Total assets $ 7,521,000 Total liabilities and equity $ 7,521,000 If all assets...
Suppose that Wall-E Corp. currently has the balance sheet shown below and that sales for the...
Suppose that Wall-E Corp. currently has the balance sheet shown below and that sales for the year just ended were $6.0 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $8.0 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments. Assets Liabilities and Equity Current assets $ 1,800,000 Current liabilities...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.3 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $8.3 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments. Assets Liabilities and Equity Current assets $ 1,701,000 Current liabilities...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $7.5 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $9.5 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments. Assets Liabilities and Equity   Current assets $ 2,400,000 Current liabilities...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the...
Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.0 million. The firm also has a profit margin of 30 percent, a retention ratio of 20 percent, and expects sales of $8.0 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments. Assets Liabilities and Equity   Current assets $ 1,800,000 Current liabilities...
Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for...
Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $6.2 million. The firm also has a profit margin of 25 percent, a retention ratio of 30 percent, and expects sales of $7.2 million next year. Assets Liabilities and Equity Current assets $ 1,504,000 Current liabilities $ 1,597,120 Fixed assets 4,200,000 Long-term debt 1,900,000 Equity 2,206,880 Total assets $ 5,704,000 Total liabilities and equity $ 5,704,000 If all assets...
The 2021 balance sheet for Hallbrook Industries, Inc., is shown below. HALLBROOK INDUSTRIES, INC. Balance Sheet...
The 2021 balance sheet for Hallbrook Industries, Inc., is shown below. HALLBROOK INDUSTRIES, INC. Balance Sheet December 31, 2021 ($ in thousands) Assets Cash $ 330 Short-term investments 280 Accounts receivable 330 Inventory 360 Property, plant, and equipment (net) 2,300 Total assets $ 3,600 Liabilities and Shareholders’ Equity Current liabilities $ 530 Long-term liabilities 480 Paid-in capital 1,400 Retained earnings 1,190 Total liabilities and shareholders’ equity $ 3,600 The company’s 2021 income statement reported the following amounts ($ in thousands):...
the balance sheet for the serden company is shown below for sales of $300000. using the...
the balance sheet for the serden company is shown below for sales of $300000. using the percentage of sales method, assuming no long-term debt is paid off how much outside financing is required?(assume net profit to sales is 6 percent, payout ratio is 60 percent of net income, and sales increase 40 percent during 2019). serden company balance sheet as of Dec. 31, 2018 cash    $15,000 accounts receivable    $60,000 inventory $90,000 current assets $165,000 fixed assets $30,000 total...
Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is...
Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 10 percent. Instructions: Enter your answers as whole numbers. a. What is the maximum amount of new loans that Big Bucks Bank can make?      $  .     Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount. Assets Liabilities and net worth (1) (2) (1' ) (2' ) Reserves $23,000    $ $ Checkable...
Berman & Jaccor Corporation's current sales and partial balance sheet are shown below. This year Sales...
Berman & Jaccor Corporation's current sales and partial balance sheet are shown below. This year Sales $ 1,000 Balance Sheet: Assets Cash $ 200 Short-term investments $ 140 Accounts receivable $ 100 Inventories $ 150     Total current assets $ 590 Net fixed assets $ 400     Total assets $ 990 Sales are expected to grow by 12% next year. Assuming no change in operations from this year to next year, what are the projected total operating assets? Do not round intermediate...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT