Question

Suppose that Wall-E Corp. currently has the balance sheet shown below, and that sales for the year just ended were $7.7 million. The firm also has a profit margin of 20 percent, a retention ratio of 25 percent, and expects sales of $9.7 million next year. Fixed assets are currently fully utilized, and the nature of Wall-E’s fixed assets is such that they must be added in $1 million increments.

If current assets and current liabilities are expected to grow with sales, what amount of additional funds will Wall-E need from external sources to fund the expected growth? (Enter your answer in dollars not in millions.)

Additional Funds Needed $ ______________

Assets				Liabilities and Equity
Current assets	$	2,618,000		Current liabilities	$	2,233,000
Fixed assets		4,928,000		Long-term debt		1,850,000
				Equity		3,463,000
Total assets	$	7,546,000		Total liabilities and equity	$	7,546,000

Answer 1