At year-end 2016, Comapny A Landscaping’s total assets were $2.0 million and its accounts payable were $355,000. Sales, which in 2016 were $2.4 million, are expected to increase by 20% in 2017. Total assets and accounts
payable are proportional to sales, and that relationship will be maintained. Company A typically uses no current liabilities other than accounts payable. Common stock amounted to $485,000 in 2016, and retained earnings wer
$260,000. Company A has arranged to sell $100,000 of new common stock in 2017 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 2017.
(Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its profit margin on sales is 4%, and 50% of earnings will be paid out as dividends.
a. What was Company A’s total long-term debt in 2016? Round your answer to the nearest dollar.
What were Company A’s total liabilities in 2016? Round your answer to the nearest dollar.
b. How much new long-term debt financing will be needed in 2017? (Hint: AFN – New stock = New long-term debt.) Round your answer to the nearest dollar.
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