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Question
Jill's Wigs Inc. had the following balance sheet last year:
Cash $ 800 Accounts payable $ 350
Accounts receivable 450 Accrued wages 150
Inventory 950 Notes payable 2,000
Net fixed assets 34,000 Mortgage 26,500
Common stock 3,200
Retained earnings 4,000
Total assets $36,200 Total liabilities and equity $36,200
Jill has just invented a non-slip wig for men which she expects will cause sales to double, increasing after-tax net income to $1,000. She feels that she can handle the increase without adding any fixed assets. (1) Will Jill need any outside capital if she pays no dividends? (2) If so, how much?
a. No; zero
b. Yes; $7,700
c. Yes; $1,700
d. Yes; $700
e. No; there will be a $700 surplus.
Answer
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