Problem:
Jill's Wigs Inc. had the following balance sheet last year:
Cash $800 Accounts Payable $350
Accounts receivable 450 Accrued wages 150
Inventory 950 Notes Payable 2000
Net fixed Assets 34000 Mortgage 26500
Common Stock 3200
Total Assets $36,200 Retained Earnings 4000
Total Liabilities
and equity $36,200
Jill has just invented a non-slip wig for men which she expects will cause sales to double from $10,000 to 20,000, increasing net income to $1,000. She feels that she can handle the increase without adding any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much?
a. No; zero
b. yes; $7700
c. yes; 1700
d. yes; 700
e; no; there will be a 700.00 surplus