Question 7: (Forecasting)

Jolly Joe's Novelties, Inc. had the financial data shown below last year. Jolly Joe's has just invented a new toy which they expect will cause sales to double from $100,000 to $180,000, increasing net income to $12,000. From experience the company knows that when sales changes, all current assets plus accounts payable and accrued expenses change at the same percentage rate, and the company feels they can handle the increase without adding any fixed assets.

a. Will Jolly Joe's need any new outside funding if they pay no dividends?

b. If so, how much will be needed?

Historical Balance Sheet for Jolly Joe's Novelties, Inc ASSETS Current Assets LIABILITIES AND EQUITY Current Liabilities $3,500 $1,500 $8,000 Accounts payable Cash Accounts Receivable $4,500 Accrued Expenses Inventory $9.500 Notes Payable $25,000 $265.000 $290,000 $32,000 $40,000 $72.000 TOTAL LABILITIES AND EQUITY $362.000 S22,000 Total Current Liabilities Total Current Assets Fixed Assets TOTAL ASSETS $340.000 Mortgage $362000 Total Liabilities Common Stock Retained Earnings Total Equity