Peerless believes that its sales next year will increase 20 percent from the current level of $800,000

Finance Dec 18, 2020

Peerless believes that its sales next year will increase 20 percent from the current level of $800,000. Management calculates that assets must increase $110,000 to support the new sales level, and current liabilities will increase $70,000. What total financing will be needed?

A) $40,000

B) $1,600

C) $33,600

D) $8,000

Expert Solution

The correct answer to the given question is option A) $40,000.

The total financing needed is given by:

=Increase in assets−Increase in current liabilities=$110,000−$70,000=$40,000

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