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External Capital Needed

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I have a multiple choice question in my homework that asks for a solution that requires that a small balance sheet be made.

Jill's Wigs had the following balance sheet last year:

Cash $800 Accounts Payable $350
Accounts receivable $450 Accrued wages $150
Inventory $950 Notes payable $2,000
Net fixed assets $34,000 Mortgage $26,000
Common Stock $3,200
Total assets $36,200 Retained earnings $4,000

Total liabilities and equity $36,200

Jill has just invented a non-slip wig for men which she expects will cause sales to double from $10,000
to $20,000, increasing net income to $1,000. She feels that she can handle the increase without adding
any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much?

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Solution Summary

The solution explains how to calculate the external capital needed given the projected increase in sales.

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We use the percent of sale approach. If the sales double, given that fixed assets will not change, the current assets and the ...

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