Question

Frisch Fish Corp expects net income next year to be $605,000. Inventory and accounts receivable will have to be increased by $295,000 to accommodate this sales level. Frisch will pay dividends of $391,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

$81,000

$192,000

$101,000

$61,000

Answer 1

Total Inventory and Account Receivables = $ 295,000

Now, Amount available after payment of dividends=

=Net Income Less Dividends

= $ 605,000 - $ 391,000

= $ 214,000

Since we know that Total Assets = Total Liabilities,

Total Assets = Amount available after payment of dividends + External Financing Required

or External Financing Required = Total Assets - Amount available after payment of dividends

= $ 295,000 - $ 214,000

= $ 81,000

Hence the correct answer is $ 81,000