LONG-TERM FINANCING NEEDED At year-end 2014, total assets for Ambrose Inc. were

$1 2 million and accounts payable were $375,000. Sales, which in 2014 were $2 5 million, are expected to increase by 25% in 2015. 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. Ambrose typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2014, 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 liabilities in 2014?

b. How much new long-term debt financing will be needed in 2015?

(Hint: AFN − New stock New long term debt.)

AppendixLO1