Suppose That Wind Em Corp

question 39

Multiple Choice

Suppose that Wind Em Corp. currently has the balance sheet shown below, and that sales for the year just ended were $15 million. The firm also has a profit margin of 23 percent, a retention ratio of 40 percent, and expects sales of $20 million next year. If all assets and current liabilities are expected to grow with sales, what is the necessary increase in assets?

• A) $240,000
• B) $3,333,333.33
• C) $1,366,957.14
• D) $1,840,000

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Definitions:

Cash Dividends

Payments made by a company out of its profits to its shareholders, usually in the form of cash.

Goodwill

An intangible asset that represents the excess of the purchase price over the fair market value of an acquired company's identifiable assets and liabilities.

Fair Value

The estimated market value of an asset or liability in an arm's length transaction between informed and willing parties.

Investment Income

Income received from the assets invested in, such as dividends, interest, or rental income.