At year-end 2002 total assets for Bertin Inc. were $1.2 million and accounts payable were $375 000.

QUESTION

At year-end 2002, total assets for Bertin Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2002 were $2.5 million, are expected
to increase by 25 percent in2003. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Bertin typically
uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2002, and retained earnings were $295,000. Bertin plans to
sell new common stock in the amount of $75,000. The firm”s profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends.

a. What was Bertin”s total debt in 2002?

b. How much new, long-term debt financing will be needed in 2003? (Hint: AFN New stock =New long-term debt.) Do not consider any financing feedback
effects.
a)Debt in 2002 = Total assets-trade liabilities-equityDebt = 1200000-375000-425000-295000 = $105000 b) AFN for 2003:AFN =

000*.25)-(375000*.25)-(2500000*1.25*.06*.60) = 93750New Debt = 93750 75000 = $18750

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION