Petal Providers Corporation, described in Problem 5, is interested in estimating its additional financing needed to support a rapid increase in sales next year. Last year, revenues were $1 million; net profit was $50,000; investment in assets was $750,000; payables and accruals were $100,000; and stockholders’ equity at the end of the year was $450,000. The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future.
A. What would be your estimate of the additional funds needed next year to support a 30 percent increase in sales?
B. How would your answer in Part A change if the expected sales growth were only 15 percent?