Assets are 100 and expected to grow by 10 liabilities and ow

Assets are 100 and expected to grow by 10% liabilities and owner’s equity are 100 and expected to grow by .06. the plug for the first pro forma year is?

a. Liability plus

b. Cash plug

c. Neither a nor b

Solution

Answer is b)

Assets = Liability + Equity

Assets are expected to grow by 10% while Liability and equity by 6%. So we have excess of assets

We can here assume cash as a plug here. Infact, it is always recommended to have cash as the plug. If any company have excess of cash, they can use that cash to pay dividends etc.