FMGT 3510: CH5 Practices | 2026 Correct Questions And Answers

5-5
a) total LT debt and total liab in 2015
year 2015
total LT debt

summary info:
total assets $2,170,000 A*
AP $560,000 L*
Sales 2015 $3,500,000
g in 2016 35%

common stock 2015 $625,000 isssued more shares 2016 $195,000
retained earnings 2015 $395,000 issued LT debt end 2016

NPM 5%
payout dividend ratio 45%

a) Total Liab and Equity = Total Assets = $2,170,000

Year 2015
Total Liab
Current Liab
AP $560,000
LT liab
LT debt $590,000 $1,150,000
Equity
Common Stock $625,000
Retained Earnings $395,000
Total Liab and Equity $2,170,000

b) how much new LT debt financing will be needed in 2016

New LT debt = AFN - New Stock isssued more shares 2016 $195,000
Calculate AFN
AFN = (A* x g) - (L* x g) - m x S1 x RR
AFN = ($2,170,000 x 35%) - ($560,000 x 35%) - 5% x ($3.5 mil x 1.35) x (1-45%)
AFN = $433,563

New LT debt = AFN - New Stock Note:
New LT debt = $238,563 Addition to RE = NI x (1- payout ratio)
Retention ratio = 1 - payout dividend ratio

, common stock 2016 $820,000