Philips Morris expects the sales for his clothing company to be £ 560,000 next year. Philip notes that net assets (Assets- Liabilities) will remain at 40% of sales. His clothing firm will enjoy a 8% return on total sales. He will start with £ 160,000 in the bank. What would Philips’s ending balance be?
Net assets = 40% * 560,000
Return on total Sales = Net Profit
0.08 = Net Profit
Net Profit = 560,000 * 0.08
Since net assets ratio remains the same, the closing balance will be;
=160,000 + 44,800
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