Firm X Has the Following Balance Sheet:
​ $\text { Balance Sheet as of } 12 / 31 / \mathrm{XX}$

question 27

Essay

Firm X has the following balance sheet:
​ $\text { Balance Sheet as of } 12 / 31 / \mathrm{XX}$
$\begin{array}{lrlr}\text { Assets }&&\text { Liabilities and Equity }\\\hline\text { Cash } & \$ 3,500 &\text { Accounts payable } & \$ 14,500 \\\text { Marketable securities } & 3,000&\text { Bank loans } & 35,000 \\\text { Accounts receivable } & 27,000&\text { Bonds } & 21,500 \\\text { Inventory } & 31,000&\text { Common stock } & 10,000 \\\text { Plant \& equipment } & 77,000&\text { Retained earnings } & 60,500\\&\$141,500&&\$141,500\end{array}$
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Sales are currently $100,000 and management expects them to rise by 20 percent to $120,000. The profit margin on sales is 10 percent and the firm distributes 30 percent of its earnings as cash dividends.​
a. How much external finance will be required by the expansion according to the percent of sales technique?
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b. If the firm needs external finance, the funds should be acquired by issuing long-term debt. If the firm has excess funds, they should be held in marketable securities. If the firm needs funds, management may also draw upon the firm's holdings of marketable securities. Construct a new projected balance sheet for the anticipated level of sales assuming that management does not increase the firm's holdings of cash.​

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Definitions:

Dishonest Answers

Responses provided by individuals that intentionally hide the truth or mislead, often for personal gain or to avoid negative outcomes.

Correlation

Usually a number between +1.0 and -1.0 that indicates whether and how much two variables are related. Correlation indicates whether an increase in one variable will increase or decrease another variable. Correlation indicates only that two variables are somehow related, not that one variable causes the other to increase or decrease.

Variables

Elements or factors that can change and affect the outcome of experiments or studies, often manipulated or measured by researchers.

Causal Link

The relationship between two events where one is the result of the occurrence of the other; a cause-effect relationship.