Question

LONG-TERM FINANCING NEEDED At year-end 2016, total assets for Arrington Inc. were $1.1 million and accounts payable were $340,000. Sales, which in 2016 were 53 million, are expected to increase by 25% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to 445,000 in 2016, and retained earnings were $275,000. Arrington plans to sell new common stock in the amount of 5120,000. The firm's profit margin on sales is 3%; 40% of earnings will be retained. a. What were Arrington's total liabilities in 20167 Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent. b. How much new long-term debt financing will be needed in 2017? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round your intermediate calculations. Round your answer to the nearest cent. (Hint: AFN - New stock = New long-term debt.)

Answer 1

a	Total Assets	$11,00,000
	Less:Common stock	$4,45,000
	Less:Retained earnings	$2,75,000
	Total Liabilities	$3,80,000
	Other liabilities	$40,000
	Accounts Payable	$3,40,000
b	Total Assets for 2017($1,100,000*1.25)	$13,75,000
	Less:Accounts payable($340,000*1.25)	$4,25,000
	Less:Common stock	$5,65,000
	Less:Retained earnings($3,000,000*1.25*3%*40%)	$45,000
	Less:Other Liabilities	$40,000
	Long-term debt financing needed	$3,00,000