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Suppose that Wind Em Corp

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Suppose that Wind Em 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 $7.3 million next year.

 

Assets  Liabilities and Equity

Current assets$1,559,000   Current liabilities$1,699,110

Fixed assets  4,300,000   Long-term debt  1,850,000      

Equity  2,309,890 

Total assets$5,859,000   Total liabilities and equity$5,859,000 

 

If all assets and current liabilities are expected to grow with sales, what amount of additional funds will Wind Em need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)  

 

1) Assets X Change in sales 2) Liabilities X change in sales

sales sales

3) Margin x sales x retained earnings = increase in retained earnings

 

Sales Sales

Sales