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LONG-TERM FINANCING NEEDED At year-end 2019, total assets for Arrington Inc. were $1.8 million and accounts payable were $450,000. Sales, which in 2019 were $3.0 million, are expected to increase by 25% in 2020. 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 2019, and
- a. What were Arrington’s total liabilities in 2019?
- b. How much new long-term debt financing will be needed in 2020? (Hint: AFN - New stock = New long-term debt.)
a.
To Determine: The total liabilities of Company AI in 2019.
AFN is abbreviated as additional funds needed, is the measure of cash an organization must rise 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).
Answer to Problem 8P
The total liabilities of Company AI in 2019 are $825,000.
Explanation of Solution
Determine the total liabilities of Company AI in 2019
Therefore the total liabilities of Company AI in 2019 is $825,000.
b.
To Determine: The new long-term debt financing needed in 2020.
Answer to Problem 8P
The new long-term debt financing needed in 2020 is $141,875.
Explanation of Solution
Determine the sales for the year 2020
Therefore, the sales for the year 2020 is $3,750,000.
Determine the change in sales
Therefore the change in sales is $750,000.
Determine the total liabilities of Company AI in 2020
Here,
AFN - Denotes additional funds needed
Therefore, the new long-term debt financing needed in 2020 is $141,875.
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Chapter 16 Solutions
Fundamentals of Financial Management, Concise Edition
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