Question

Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $70 million next year. ARI currently has accounts receivable of $12 million, inventories of $12 million, and net fixed assets of $15 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $13 million to a new level of $17 million next year. ARI wants to increase its cash balance at the end of next year by $1 million over its current cash balances, which average $4 million. Earnings after taxes next year are forecasted to be $10 million. Next year, ARI plans to pay dividends of $1 million, up from $500,000 this year. ARI’s marginal tax rate is 34 percent. How much external financing is required by ARI next year? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.

$ million

Answer 1

Assets	Current	Proposed
cash	4.00	5.00
accounts receivable	12.00	16.80
inventories	12.00	16.80
net fixed assets	15.00	21.00
Total Assets	43.00	59.60
Liabilities
Accounts payable	13.00	17.00
EFN	0.00	3.60
Stockholders equity	30.00	39.00
Total liabilities and stockholders equity	43.00	59.60
Stockholders equity
Beginning balance	30.00
Add: Net Income	10
Less: Dividend	-1
Ending Balance	39.00
Hence the external finance required next year is $ 3.60 million