The Hudson River Line Company Has a Balance Sheet as of the End

Multiple Choice

The Hudson River Line Company has a balance sheet as of the end of the year as follows: $\begin{array}{|l|c|c|}\hline \text { Cash } & \$ 5,000 \text { Accounts Payable } & \$ 15,000 \\\hline \text { Accounts Receivable } & 20,000 \text { Notes Payable } & 10,000 \\\hline \text { Inventories } & 40,000 \text { Total Current Liab. } & 25,000 \\\hline \text { Total Current Assets } & \$ 65,000 \mid \text { Long-term Debt } & 30,000 \\\hline \text { Fixed Assets, net } & 50,000 \text { Stockholder's Equity } & 60,000 \\\hline \text { Total Assets } & \$ 115,000 \mid \text { Total Liabilities \& Equity } & \$ 115,000 \\\hline\end{array}$ Last year, the firm had sales of $148,750. This year the company expects sales to increase 25%, to generate earnings after tax of $16,000, and to pay a dividend of $5,000. Hudson operated its fixed assets at 85% capacity last year. What additional financing will be needed to support the sales increase?

A) $2,125
B) $4,625
C) $1,500
D) $375 surplus -- no financing needed.