iLearn : MBA_602N_700_16F : Tests & Quizzes

The last year balance sheet for Laura Inc. is shown below (in millions of dollars):

Cash		$ 3.0		Accounts payable		$ 2.0
Accounts receivable		3.0		Notes payable		1.5
Inventory		5.0
Current Assets		$11.0		Current liabilities		$ 3.5
Fixed assets		3.0		Long-term debt		3.0
				Common equity		7.5
Total assets		$14.0		Total liabilities and equity		$14.0

For last year, sales were $60 million. For the next year, management believes that sales will increase by 30 percent to a total of $78 million. The profit margin is expected to be 6 percent, and the retention ratio is targeted at 40 percent. No excess capacity exists. What is the additional financing requirement (in millions) for the next year using the formula method?

• A. a. $1.73
• B. b. $6.67
• C. c. $18.2
• D. d. -$6.67
• E. e. -$1.73