Management provides the current balance sheet below. In planning for next year they are making the following assumptions
Sales will increase by 50%
Net income is projected to be $1,770
The plan will require an addition to PPE of $2,500
The firm pays a dividend 26%
Calculate the amount of additional funds needed.
.
Select one:
a. $2,830 Incorrect
b. $2,600
c. $3,290
d. $4,600
To calculate the amount of additional funds needed, we need to consider the changes in various financial elements based on the given assumptions.
Let's break down the calculation step-by-step:
1. Sales increase by 50%: This means that the projected sales for next year will be the current sales multiplied by 1.5.
2. Net income is projected to be $1,770: This indicates that the firm's net income for next year will be $1,770.
3. Addition to PPE (Property, Plant, and Equipment) of $2,500: This means that the firm plans to invest an additional $2,500 in PPE.
4. Dividend payment of 26%: This implies that the firm will distribute dividend payments equal to 26% of its net income.
To calculate the additional funds needed, we need to consider the following elements:
Additional Funds Needed = Increase in Sales - Increase in Net Income - Additional PPE Investment + Dividend Payments
Now, let's calculate each component:
1. Increase in Sales = Current Sales * (Sales Increase Percentage) = Current Sales * 50% = 0.5 * Current Sales
2. Increase in Net Income = Projected Net Income - Current Net Income = $1,770 - Current Net Income
3. Additional PPE Investment = $2,500
4. Dividend Payments = Net Income * Dividend Percentage = Projected Net Income * 26%
Finally, let's substitute the given values into the formula for additional funds needed.
Additional Funds Needed = (0.5 * Current Sales) - (Projected Net Income - Current Net Income) - $2,500 + (Projected Net Income * 26%)
Since we don't have the current sales information, it is not possible to calculate the exact additional funds needed. However, based on the given options, we can eliminate options that are clearly incorrect.
Therefore, the correct answer cannot be determined based on the given information.