Question

# Could you please provide the detailed solution with full explanation for the final decision. The corporation,...

Could you please provide the detailed solution with full explanation for the final decision.

The corporation, which is currently operating at full capacity, has sales of \$47,000, current assets of \$5,100, current liabilities of \$6,200, net fixed assets of \$51,500, and a 3.1 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 3 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, how much additional equity financing is required for next year?

A) \$ 0

B) \$ 500

C) \$ 967

D) \$ 1698

E) \$ 1512

1)Next year sales : 47000 (1+.03) = 48410

Next year profit margin = 48410*.031 = 1500.71 [This will be an addition to retained earning since there is no dividend payout]

2)current year :

Total asset = 5100+ 51500= 56600

Total liabilities =6200

Total equity = 56600-6200= 50400

Next year :

Total asset : 56600(1+.03)= 58298

Total liabilities = 6200(1+.03) = 6386

Equity = 58298-6386 = 51912

Equity = Equity last year + addition to retained earning + AFN

51912 =50400+1500.71+ AFN

AFN = 51912-50400-1500.71

= 11.29    (almost nearest to 0 since 11.29 is minimal amount]

Correct option is "A" - 0

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