Problem:
Small Motors Inc, which is currently operating at full capacity, has sales of $29,000, current assets of $1,600, current liabilities of $1,200, net fixed assets of $27,500, and a 5 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 4.5 percent next year. If all assets, short-term liabilities, and costs vary directly with sales, answer the following questions? ? Hint: (Additional Financing Required = Projected assets -projected liabilities-current equity-projected increase in retained earnings)
Required:
Question 1: What is the amount of projected assets?
Question 2: What is the amount of projected liabilities?
Question 3: What is the current equity?
Question 4: What is the projected increase in retained earning?
Question 5: How much additional equity financing is required for next year?
Note: Provide support for your rationale.