Question

MPC Corp has not raised any new equity in the last three years, relying instead on short term debt as the main source of external financing whenever needed. What was the External Financing Needed for MPC in years 2018 and 2019? Calculate your answer based on the Balance Sheet provided below.

	2017	2018	2019
Assets
Cash and marketable securities	$ 10,000	$ 10,000	$ 5,000
Receivables	60,000	75,000	105,000
Inventories	70,000	95,000	140,000
Total current assets	140,000	180,000	250,000
Gross plant and equipment	205,000	205,000	255,000
Less: accumulated depreciation	−28,000	−42,000	−59,000
Net plant and equipment	177,000	163,000	196,000
Total assets	$317,000	$343,000	$446,000
Liabilities and Equity
Payables	47,000	57,000	84,000
Short-term bank loan	40,000	44,000	110,000
Accrued liabilities	8,000	9,000	10,000
Total current liabilities	95,000	110,000	204,000
Long-term debt	100,000	90,000	80,000
Owners’ equity	122,000	143,000	162,000
Total liabilities and equity	$317,000	$343,000	$446,000

Answer 1

External Financing Needed = Total current assets + Net Plant and Equipment - Payables - Accrued liabilities - Long-term debt - Owners' equity

External Financing Needed for 2018 = $180,000 + $163,000 - $57,000 - $9,000 - $90,000 - $143,000 = $44,000

External Financing Needed for 2018 of $44,000 will be financed by short-term debt or bank loan.

External Financing Needed for 2019 = $250,000 + $196,000 - $84,000 - $10,000 - $80,000 - $162,000 = $110,000

External Financing Needed for 2019 of $110,000 will be financed by short-term debt or bank loan.