Assets must grow in proportion to projected sales

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Reference no: EM13924882

Carter Corporation's sales are expected to increase from $5 million in 2012 to $6 million in 2013, or by 20%. Its assets totaled $3 million at the end of 2012. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2012, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 6%.

Assume that the company pays no dividends.

a) Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

b) Why is this AFN different from the one when the company pays dividends? Please choose correct answer.

a. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.

b. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.

c. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.

d. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.

e. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.

Reference no: EM13924882

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