A Firm Has the Following Balance Sheet Fixed Assets Are Being Used at 80 Percent of Capacity;

question 139

Multiple Choice

A firm has the following balance sheet: $\begin{array}{c}\begin{array}{lr}\text { Cash } & \$ 10 \\\text { Accounts receivable } & 10 \\\text { Inventories } & 10 \\\text { Fixed assets } & 90 \\&\underline{\quad\quad}\\\text { Total assets } & -\$ 120\end{array}\begin{array}{lr} \text {Accounts payable}&\$10\\ \text {Notes payable}&20\\ \text {Long-tem debt}&40\\ \text {Common stock}&40\\ \text {Retained earnings}&\underline{10}\\ \text {Total liabilities and equity}&\underline{\$120}\end{array}\end{array}$
Fixed assets are being used at 80 percent of capacity; sales for the year just ended were $200; sales will increase
$10 per year for the next 4 years; the profit margin is 5 percent; and the dividend payout ratio is 60 percent.Assume that fixed assets cannot be sold.What are the total external financing requirements for the entire 4 years, i.e., the total AFN for the 4-year period?

• A)$4.00
• B)$2.00
• C)?$0.80 (Surplus)
• D)?$14.00 (Surplus)
• E)$0