Question

Tinbergen Cans expects sales next year to be $50,000,000. Inventory and accounts receivable (combined) will increase $8,000,000 to accommodate this sales level. The company has a profit margin of 6 percent and a 30 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

A. No external financing will be needed.

B. Less than $1,000,000 of external financing is needed.

C. Between $1,000,000 and $5,000,000 of external financing is needed.

D. More than $5,000,000 of external financing is needed.

Answer 1

The firm's accounting profit is $50,000.

Step-by-step explanation:

The firm's accounting profit can be calculated by subtracting the total expenses from the sales revenue. In this case, the total expenses are $600,000 + $150,000 + $200,000 = $950,000. Therefore, the accounting profit is $1,000,000 - $950,000 = $50,000.