Suppose That BBM Industries, Inc A) $0
B) $62,500
C) $437,500
D) $500,000

Suppose that BBM Industries, Inc. currently has the balance sheet shown as follows, and that sales for the year just ended were $2 million. The firm also has a profit margin of 5 percent, a retention ratio of 50 percent, and expects sales of $2.5 million next year. If all assets and current liabilities are expected to increase with sales, what amount of additional funds will the company need from external sources to fund the expected growth?
$$\begin{array} { l r l l l } \text { Assets } & & { \text { Liabilities and Equity } } \\\text { Current Assets } & \$ 1,000,000 & \text { Current Liabilities } & \$ 1,000,000 \\\text { Fixed Assets } & 2,000,000 & \text { Long-tern Debt } & 1,000,000 \\& & \text { Equity } & 1,000,000 \\\text { Total Assets } & \$ 3,000,000 & \text { Total Liabilities ard Equity } & \$ 3,000,000\end{array}$$

A) $0
B) $62,500
C) $437,500
D) $500,000

Correct Answer:

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