Carlsbad Corporations sales are expected to increase from 5

Carlsbad Corporation\'s sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 3%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

Solution

Additional funds = Increase in assets - Increase in liabilities - Increase in retained earnings

= ($3,000,000*20%) - (($500,000)*20%) - ($6,000,000*3%)

= $600,000 - $100,000 - $180,000

= $320,000

=