Reference no: EM1316288

Computation of projected external capital requirements

Upton computers make bulk purchases of small computers, stock them in conveniently located warehouses, and ships them into its chain of retail stores. Upton\'s balance sheet as of December 31, 2006, is shown here (millions of dollars):

Cash	$  3.5	Accounts payable	$  9.0
Receivable	26.0	Notes payable	18.0
Inventories	58.0	Accruals	8.5
Total current assets	$87.5	Total current liabilities	$ 35.5
Net fixed assets	35.0	Mortgage loan	6.0
		Common stock	15.0
		Retained earnings	66.0
Total assets	$122.5	Total liabilities and equity	$122.5

Sales for 2006 were $3.50 million, while net income for the year was $20.5 million. Upton pay dividends of $4.2 million to common stockholders. The firm is operating at full capacity. Assume that all ratios remain constant.

a.   If sales are projected to increase by $70 million, or 20 percent, during 2007.

b.  Determine Upton's projected external capital requirement if the increase in sales is expected to be carried out without any expansion of fixed assets.

c.  How much can sales grow above 2006 of $350 million without requiring any additional funds?