Suppose that Psy Ops Industries currently has the balance sheet shown below, and
ID: 2803841 • Letter: S
Question
Suppose that Psy Ops Industries currently has the balance sheet shown below, and that sales for the year just ended were $4.7 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $7.7 million next year. Assets Liabilities and Equity Current assets $ 1,974,000 Current liabilities $ 1,927,000 Fixed assets 3,850,000 Long-term debt 1,650,000 Equity 2,247,000 Total assets $ 5,824,000 Total liabilities and equity $ 5,824,000 If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will Psy Ops need from external sources to fund the expected growth? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign.)
Explanation / Answer
AFN (A/S0)S–(L/S0)S–MS1(RR) A- Assets tied directly to sales L-spontaneous liabilities that are affected by sales S0 the previous year's sales S1 total projected sales for next year S the change in sales between S0 and S1 MS1 projected net income RR the retention ratio from net income External funds needed $ (355,000) (1974000/4700000)*3000000-(1927000/4700000)*3000000-7700000*20%*25%