Problem: Talley Appliances, Inc. projects next year’s sales to be $20 million. Current sales are at $15 million, which is based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Talley forecasts which current assets will increase in direct proportion to the rise in sales, but fixed assets will rise by only $100,000. Presently, Talley has $1.5 million in accounts payable (which differ directly with sales), $2 million in long-term debt (due in 10 years), and common equity (comprising $4 million in retained earnings) totalling $6.5 million. Talley plans to pay $500,000 in common stock dividends upcoming year.
a. What are Talley’s total financing needs (that is, total assets) for the upcoming year?