The Charlie Company\'s sales are forecasted to increase from $500 in 2007 to $10
ID: 2613739 • Letter: T
Question
The Charlie Company's sales are forecasted to increase from $500 in 2007 to $1000 in 2008. Here is the December 31, 2007 balance sheet:
Cash
50
Accounts payable
25
Receivables
100
Notes payable
75
Inventory
100
Accruals
25
Total current assets
250
Total current liabilities
125
Long-term debt
200
Common stock
50
Net fixed assets
250
Retained earnings
125
Total assets
500
Total liab/equity
500
Charlie's fixed assets were used to only 50 percent of capacity during 2007, but its current assets were at their proper levels. All assets except fixed assets should be at a constant percentage of sales, and fixed assets would also increase at the same rate if the current excess capacity did not exist. Charlie's after-tax profit margin is forecasted to be 8 percent, and its payout ratio will be 40 percent. What is Bouchard's additional funds needed for the current year?
Cash
50
Accounts payable
25
Receivables
100
Notes payable
75
Inventory
100
Accruals
25
Total current assets
250
Total current liabilities
125
Long-term debt
200
Common stock
50
Net fixed assets
250
Retained earnings
125
Total assets
500
Total liab/equity
500
Explanation / Answer
Additional Funds can be acquired by issuing common stock or raising debt to support and sustain the sales.
Sales (2007) 500 Sales (2008) 1000 % Increase 100 After Tax Profit Margin 80 Dividend Payout 32 Retained Earnings 48