Great Subs Believes It Can Increase Sales by 50% Without

question 17

Multiple Choice

Great Subs believes it can increase sales by 50% without any increase in net fixed assets.Earnings after tax are expected to be $2,000.The company pays no dividends.What additional financing will Subs need to finance this growth? Subs' balance sheet currently is as follows:
$$\begin{array} { | l | r | l | r | } \hline \text { Cash } & \mathbf { 2 , 5 0 0 } & \text { Accaunts Payahle } & \text { 5,600 } \\\hline \text { Accaunts Rec. } & 4,400 & \text { Nater Payable } & 10,000 \\\hline \text { Inventory } & 6,000 & \text { Lang-term Debt } & 15,000 \\\hline \text { Fixed As5ets, net } & 47,700 & \text { Stockholde's Equity } & 30,000 \\\hline & \mathbf { 8 0 , 6 0 0 } & & \mathbf { 3 0 , 6 0 0 } \\\hline\end{array}$$

• A)$3,350 surplus -- no additional financing needed
• B) $1,650
• C) $3,650
• D) None of the answers is correct.

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Definitions:

Aggregate Demand Curve

A graph showing the relationship between the total quantity of goods and services demanded across all sectors of an economy and the overall price level.

Net Exports

The value of a country's total exports minus the value of its total imports; it is a component of a country's gross domestic product.

Investment

The expenditure on capital assets that may yield returns in the future, such as stocks, bonds, or physical property.

Price Level

A comprehensive mean of the existing prices for the economy's produced goods and services.