At year-end 2002, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2002 were $2.5 million, are expected to increase by 25% in 2003. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2002, and retained earnings were $295,000. Ambrose plans to sell new common stock in the amount of $75,000. The firm's profit margin on sales is 6%; 60% of earnings will be retained.
a.) What was Ambrose's total debt in 2002?
b.) How much new, long-term debt financing will be needed in 2003?
(hint: AFN - New stock = New long-term debt)
In this Solution the author completed the requested financial analysis for Ambrose Inc. and provides calculations to aid you in understanding each answer.