Computation of projected external capital requirements
Upton computers make bulk purchases of small computers, stock them in conveniently located warehouses, and ships them into its chain of retail stores. Upton\'s balance sheet as of December 31, 2006, is shown here (millions of dollars):
|
Cash
|
$ 3.5
|
Accounts payable
|
$ 9.0
|
|
Receivable
|
26.0
|
Notes payable
|
18.0
|
|
Inventories
|
58.0
|
Accruals
|
8.5
|
|
Total current assets
|
$87.5
|
Total current liabilities
|
$ 35.5
|
|
Net fixed assets
|
35.0
|
Mortgage loan
|
6.0
|
|
|
|
Common stock
|
15.0
|
|
|
|
Retained earnings
|
66.0
|
|
Total assets
|
$122.5
|
Total liabilities and equity
|
$122.5
|
Sales for 2006 were $3.50 million, while net income for the year was $20.5 million. Upton pay dividends of $4.2 million to common stockholders. The firm is operating at full capacity. Assume that all ratios remain constant.
a. If sales are projected to increase by $70 million, or 20 percent, during 2007.
b. Determine Upton's projected external capital requirement if the increase in sales is expected to be carried out without any expansion of fixed assets.
c. How much can sales grow above 2006 of $350 million without requiring any additional funds?