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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

LONG-TERM FINANCING NEEDED At year-end 2018, total assets for Arrington Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2018 were $3.0 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $500,000 in 2018, and retained earnings were $475,000. Arrington plans to sell new common stock in the amount of $130,000. The firm's profit margin on sales is 5%; 35% of earnings will be retained.

  1. a. What were Arrington’s total liabilities in 2018?
  2. b. How much new long-term debt financing will be needed in 2019?

(Hint: AFN – New stock = New long-term debt.)

a.

Summary Introduction

To Determine: The total liabilities of Company AI in 2018.

Introduction: AFN is abbreviated as additional funds needed, is the measure of cash an organization must raise from outer sources to back the expansion in assets necessary to help expanded level of sales. It is additionally called as external financing needed (EFN).

Explanation

Determine the total liabilities of Company AI in 2018

TotalLiabilities=[TotalLiabilitiesandEquityCommonS

b.

Summary Introduction

To Determine: The new long-term debt financing needed in 2019.

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