Question

You are estimating your company’s external financing needs for the next year. At the end of next year, you expect that owners’ equity will be $80 million, total assets will amount to $170 million, and total liabilities will be $70 million. How much will your firm need to borrow, or otherwise acquire, from outside sources during the next year?

Answer 1

Liabilities must rise in 20 million up to a total amount of 90 million.

Step-by-step explanation:

Accounting Equation Formula:

Assets = Liabilities + Owner's Equity

Assets = 170 million

Liabilities + Owner's Equity = 70 million + 80 million = 150 million

The difference is: 20 million. That is the extra amount that the company must borrow from outside sources, so liabilities will rise up to 90 million.