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Phantasy
1 month ago
14

Wilson is currently operating at maximum capacity. The firm has a net income of $2,250, total assets of $24,600, long-term debt

of $9,800, accounts payable of $2,700, dividends of $900, and total equity of $12,100. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 5 percent?
Business
1 answer:
Nady [2.9K]1 month ago
6 0

Answer:

Due to increased sales, the company’s debt will decline by 187.5 dollars

Explanation:

total income of 2,250

dividends amounting to 900

payout ratio: 900/2,250 = 0.4

income projected to grow by 5%

2,250 multiplied by 1.05 equals 2,362.5‬

retained earnings for breakeven:

2,362.5 times ( 1 - 0.4) equals 1,417.5

asset increase:

24,600 multiplied by 0.05 equals 1,230

Now we apply this to the accounting equation:

Assets = liabilities + equity

+1,230 = liabilities + 1,417.5

thus, liabilities = -187.5

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