Suppose That Runner Industries Currently Has the Balance Sheet Shown

question 12

Multiple Choice

Suppose that Runner Industries currently has the balance sheet shown as follows, and that sales for the year just ended were $5 million. The firm also has a profit margin of 10 percent, a retention ratio of 20 percent, and expects sales of $7 million next year. If fixed assets have enough capacity to cover the increase in sales and all other assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?
$$\begin{array} { l c l r r } \text { Assets } && { \text { Liabilities and Equity } } \\\text { Current Assets } & \$ 1,500,000 & \text { Current Liabilities } & \$ 600,000 \\\text { Fixed Assets } & 3,000,000 & \text { Long-tem Debt } & 1,400,000 \\& & \text { Equity } & 2,500,000 \\\text { Total Assets } & \$ 4,500,000 & \text { Total Liabilities ard Equity } & \$ 4,500,000\end{array}$$

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Definitions:

Thermoregulation

The process by which organisms regulate their internal body temperature to maintain homeostasis.

Aerobic Respiration

A metabolic process involving oxygen where cells convert nutrients into energy and produce carbon dioxide and water as waste products.

Carbon Dioxide

A colorless, odorless gas produced by burning carbon and organic compounds and by respiration, exhaled as a waste product.

Ketone Bodies

Metabolic byproducts produced from the breakdown of fatty acids, used as an energy source when glucose is scarce.