Answer Options Are:

A. 431

B. 731

C. 24

D. 263 - INCORRECT

E. 330

4. Major Manuscripts, Inc. is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent? HINT: Start by calculating the growth in assets. Now we need to figure out how we will pay for the growth. Start by subtracting off from that needed amount of new assets the estimated growth in internal equity (that it, the new retained earnings that will be used to purchase some of those new assets). Since current liabilities also grow proportional to sales in this problem, also subtract off the estimated growth in current liabilities (used to finance the purchase of current assets). Whatever amount is left over is what we must raise in new, long-term debt. Major Manuscripts, Inc. 2009 Income Statement Net sales 7,600 Cost of goods sold 6,715 Depreciation 180 Earnings before interest and 705 taxes Interest paid 22 Taxable Income 682 Taxes 238 Net income 445 Dividends 200 Cash Accounts rec. Inventory Total Net fixed assets Total assets Major Manuscripts, Inc. 2009 Balance Sheet 2009 2,200 Accounts payable 820 Long-term debt 2,300 Common stock 5,320 Retained earnings 3,280 8,600 Total liabilities & equity 2009 1,600 300 2,600 4,100 8,600