A Firm Has Current Sales of $32,000

question 85

Multiple Choice

A firm has current sales of $32,000. Projected sales for next year are $35,520. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The expected increase in retained earnings is $2,200. What is the projected external financing need given the following current account values?

• A) -$3,532
• B) -$1,969
• C) -$1,390
• D) $231
• E) $1,341

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Definitions:

Time Value

The idea that having money now is more valuable than having the same sum at a later date because of its ability to earn more over time.

Profitability Index

A financial tool used to determine the relationship between the costs and benefits of a proposed project, calculated by dividing the present value of future cash flows by the initial investment.

Investment Amounts

The total funds allocated by individuals or businesses towards investment vehicles like stocks, bonds, or real estate for the purpose of earning returns.

Required Rate

The minimum return or yield that investors expect to receive on an investment, taking into account the risk level and market conditions.