Patrick Inc, which is currently operating at full capacity, has sales of $29,000
ID: 2626331 • Letter: P
Question
Patrick Inc, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 6.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, answer the following questions? Hint: (Additional Financing Required = Projected assets projected liabilities-current equity-projected increase in retained earnings)
a. What is the amount of projected assets?
b. What is the amount of projected liabilities?
c. What is the current equity?
d. What is the projected increase in retained earning?
e. How much additional equity financing is required for next year?
Explanation / Answer
Patrick Inc, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 percent profit margin. The firm has no long-term debt and does not plan on acquiring any. The firm does not pay any dividends. Sales are expected to increase by 6.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, answer the following questions? Hint: (Additional Financing Required = Projected assets projected liabilities-current equity-projected increase in retained earnings)
a. What is the amount of projected assets?
Increase in assets next year = (Fixed Asset + current Asset)*6.5%
Increase in assets next year =(27500+1600)*6.50%
Increase in assets next year = $ 1891.50
The amount of projected assets = Current year total asset + Increase in asset next year
The amount of projected assets = 29100 + 1891.50
The amount of projected assets = $ 30991.50
b. What is the amount of projected liabilities?
Increase in liability next year = current liability*6.5%
Increase in liability next year =1200*6.50%
Increase in liability next year = $ 78
The amount of projected liability = Current year total Liabilty + Increase in asset next year
The amount of projected liability = 1200 + 78
The amount of projected liability = $ 1278
c. What is the current equity?
Current equity = Current Year Total assets - Current Year Total Liabilty
Current equity = 29100 - 1200
Current equity = $27900
d. What is the projected increase in retained earning?
Sales in Next year = 29000*106.5% = $ 30885
Profit Margin = 5%
Net profit = 30885*5% = $ 1544.25
Dividend = 0
Projected increase in retained earning = $ 1544.25
e. How much additional equity financing is required for next year?
Additional Financing Required = Projected assets - projected liabilities-current equity-projected increase in retained earnings
Additional Financing Required = 30991.50 -1278 - 27900 - 1544.25
Additional Financing Required = $ 269.25