The company expects that sales and earnings will increase

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Recommended Financing. Frost Corporation has shown growth in sales and earnings but has a liquidity problem. The rate of inflation is high. At year-end 20X8, the company requires $500,000 for the following reasons:

New machinery

$200,000

Research and development

80,000

Paying overdue obligations

130,000

Paying accrued expenses

25,000

Desired increase in cash balance

65,000


$500,000

Partial financial statements for 20X8 are shown below.

Frost Corporation

Balance Sheet

December 31, 20X8

ASSETS



Current assets



Cash

$10,000


Other current assets

320,000


Total current assets


$330,000

Noncurrent assets


570,000

Total assets


$900,000

LIABILITIES AND

STOCKHOLDERS' EQUITTY

Current liabilities


$500,000

Long-term debt


100,000

Total liabilities


$600,000

Stockholders' equity



Common stock

$250,000


Retained earnings

50,000


Total stockholders' equity


300,000

Total liabilities and stockholders'



Equity


$900,000

Frost Corporation

Income Statement

For the year Ended December 31, 20X8

Sales

$1,300,000

Cost of sales

600,000

Gross margin

$ 700,000

Operating expenses

500,000

Income before tax

$ 200,000

Tax

86,000

Net income

$ 114,000

The company expects that sales and earnings will increase by 25 percent and 20 percent, respectively. What type of financing is recommended?

Reference no: EM13573849

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