Calculate United's total assets if the firm expects sales to grow 15 percent this year and...
Calculate United's total assets if the firm expects sales to grow 15 percent this year and the earnings after tax will be $50,000. United paid $20,000 in dividends last year and expects to increase dividends 10 percent this year. The firm will need additional financing of $25,000 to finance the expected growth. United started the year with $40,000 in accounts payable; $30,000 in notes payable; and $100,000 in long-term debt. The company is operating at full capacity.
Homework Answers
AFN = (A/S0)ΔS–(L/S0)ΔS–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
ΔS=the change in sales between S0 and S1
MS1=projected net income
RR=the retention ratio from net income
$25,000 = (A/S)(0.15*S) - ($40,000/S)(0.15*S) - ($50,000 - $22,000)
A = $393,333
Hence, Total assets are $393,333
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