With sales of $400,000, MJM, Inc. is operating at capacity but management anticipates that sales will grow 25 percent during the coming year. The company earns 10 percent on sales and distributes 50 percent of earnings to stockholders. Its current balance sheet is as follows:   MJM, Incorporated Balance Sheet as of 12/31/X0 Assets   Liabilities and Equity Cash $ 5,500   Accounts payable $ 41,000 Accounts receivable   38,000   Accruals   51,000 Inventory   72,000   Notes payable   0  Current assets   115,500    Current liabilities   92,000 Plant and equipment   100,000   Common stock   70,000         Retained earnings   53,500 Total assets $ 215,500   Total liabilities and equity $ 215,500     In addition to cash, which assets and liabilities will increase with the increase in sales and by how much if the percent of sales is used to forecast the increases? If assets or liabilities does not change enter zero as a forecasted change. Do not round intermediate calculations. Round your answers to the nearest dollar.   Assets and Liabilities Change Forecasted change Cash   $   Accounts receivable   $   Inventory   $   Plant and equipment   $   Accounts payable   $   Accruals   $   Notes payable   $     How much external finance will the firm need? Round your answer to the nearest dollar. $   If cash did not increase but could be maintained at $5,500, what impact would the lower cash have on the firm's need for external finance? Round your answer to the nearest dollar. Enter your answer as a positive value. If cash remained at $5,500 the need for external funds would be  by $   . If the firm distributed 25 percent (2) instead of 50 percent (1) of its earnings, would it need external finance? The net increase in retained earnings comparing (2) with (1) is $   . It  cover the external funds needed. Construct a new balance sheet assuming that cash increases with the increase in sales and the firm distributes 50 percent of its earnings to stockholders. If the firm needs external finance, acquire the funds by issuing a short-term note to a commercial bank. Do not round intermediate calculations. Round your answers to the nearest dollar.   MJM, Incorporated Balance Sheet as of 12/31/X1 Assets   Liabilities and Equity Cash $      Accounts payable $    Accounts receivable        Accruals      Inventory        Notes payable       Current assets         Current liabilities      Plant and equipment        Common stock              Retained earnings      Total assets $      Total liabilities and equity $

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter16: Financial Planning And Control
Section: Chapter Questions
Problem 2PROB
icon
Related questions
Question

With sales of $400,000, MJM, Inc. is operating at capacity but management anticipates that sales will grow 25 percent during the coming year. The company earns 10 percent on sales and distributes 50 percent of earnings to stockholders. Its current balance sheet is as follows:

 

MJM, Incorporated Balance Sheet as of 12/31/X0
Assets   Liabilities and Equity
Cash $ 5,500   Accounts payable $ 41,000
Accounts receivable   38,000   Accruals   51,000
Inventory   72,000   Notes payable   0
 Current assets   115,500    Current liabilities   92,000
Plant and equipment   100,000   Common stock   70,000
        Retained earnings   53,500
Total assets $ 215,500   Total liabilities and equity $ 215,500
 

 

  1. In addition to cash, which assets and liabilities will increase with the increase in sales and by how much if the percent of sales is used to forecast the increases? If assets or liabilities does not change enter zero as a forecasted change. Do not round intermediate calculations. Round your answers to the nearest dollar.

     

    Assets and Liabilities Change Forecasted change
    Cash   $  
    Accounts receivable   $  
    Inventory   $  
    Plant and equipment   $  
    Accounts payable   $  
    Accruals   $  
    Notes payable   $  

     

  2. How much external finance will the firm need? Round your answer to the nearest dollar.

    $  

  3. If cash did not increase but could be maintained at $5,500, what impact would the lower cash have on the firm's need for external finance? Round your answer to the nearest dollar. Enter your answer as a positive value.

    If cash remained at $5,500 the need for external funds would be  by $   .

  4. If the firm distributed 25 percent (2) instead of 50 percent (1) of its earnings, would it need external finance?

    The net increase in retained earnings comparing (2) with (1) is $   . It  cover the external funds needed.

  5. Construct a new balance sheet assuming that cash increases with the increase in sales and the firm distributes 50 percent of its earnings to stockholders. If the firm needs external finance, acquire the funds by issuing a short-term note to a commercial bank. Do not round intermediate calculations. Round your answers to the nearest dollar.

     

    MJM, Incorporated Balance Sheet as of 12/31/X1
    Assets   Liabilities and Equity
    Cash $      Accounts payable $   
    Accounts receivable        Accruals     
    Inventory        Notes payable     
     Current assets         Current liabilities     
    Plant and equipment        Common stock     
            Retained earnings     
    Total assets $      Total liabilities and equity $   
     

     

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CFIN
EBK CFIN
Finance
ISBN:
9781337671743
Author:
BESLEY
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Accounting: The Impact on Decision Make…
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning