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At year-end 2015, Wallace Landscapings total assets were $1.9 million and its accounts payable were $395,000. Sales, which in 2015 were $2.4 million, are expected to increase by 30% in 2016. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $465,000 in 2015, and retained earnings were $270,000. Wallace has arranged to sell $110,000 of new common stock in 2016 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2016. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 7%, and 55% of earnings will be paid out as dividends.

Long-Term Financing Needed Original total assets Original accounts payable Original sales % Growth in sales Original stock Original retained earnings New stock issue Profit margin Payout rate $1,900,000 $395.000 $2,400,000 30.00% $465,000 $270,000 $110,000 7.00% 55.00% Debt Calculations: Original long-term debt Original total liabilities Formulas #N/A #N/A Additional Funds Needed Calculation: Required % increase in assets % increase in spontaneous liabilities New Sales, S, Change in Sales, AS #N/A #N/A #N/A #N/A Required increase in assets Increase in spontaneous liabilities Increase in retained earnings New stock issue New debt needed = AFN - new stock #N/A #N/A #N/A #N/A #N/A