Question

Problem 23-07

RRM, Inc. has the following balance sheet:

RRM, Incorporated Balance Sheet as of 12/31/X0
Assets				Liabilities and Equity
Cash	$	3,600		Accruals	$	5,200
Marketable securities		1,800		Accounts payable		16,100
Accounts receivable		16,420		Notes payable		7,000
Inventory		19,120
				Long-term debt		22,000
				Common stock		18,000
Plant and equipment		40,000		Retained earnings		12,640
	$	80,940			$	80,940

Sales are currently $100,000, but management expects sales to rise to $120,000. The net profit margin is expected to be 11 percent, and the firm distributes 50 percent of its earnings as dividends.
Management is concerned about the firm's need for external funding to cover the expansion in assets required by the expansion in sales. To achieve sales of $120,000, management will have to expand the plant by $10,000 and expects to increase its holdings of cash by $1,000. However, the holding of marketable securities may be reduced to zero.

1. According to the percent of sales and the additional information, will the firm need external financing, and, if so, how much? Round your answer to the nearest dollar. Enter the answer as a positive value.

   The firm -Select ONE: will need external// will have excess funds of $ _____.

2. Construct a pro forma balance sheet indicating the forecasted new entries for sales of $120,000. If the firm has excess funds, they should be invested in marketable securities. If the firm needs funds, these should be covered by issuing new long-term debt. If your answer is zero, enter "0". Round your answers to the nearest dollar.

   RRM, Incorporated Pro Forma Balance Sheet as of 12/31/X1
   Assets				Liabilities and Equity
   Cash	$	___________		Accruals	$	___________
   Marketable securities				Accounts payable
   Accounts receivable				Notes payable
   Inventory
   				Long-term debt
   				Common stock
   Plant and equipment				Retained earnings
   	$				$

Answer 1

Answer is given below with working