Question

Please show your work:

Question 3 15 Points KBC, Inc. has the financial profile illustrated below. Income Statement Balance Sheet $ Assets $ $ Sales Costs Taxable income Taxes (21%) Net income 222,300 136,000 86,300 18,123 68,177 510,600 Debt Equity 510,600 Total 100,500 410,100 510,600 $ Total $ $ $ Tax rate Dividend paid 21% 15,500 $ Margins (%) will hold steady, and Assets grow proportionally with Sales. Debt and Equity are set independently. ABC intends to maintain a constant dividend payout ratio (dividend as a percent of Net Income). Next year's sales are projected to increase by 13%. How much additional external capital (debt or equity or both) will be required to support the growth in assets, given that KBC, Inc. retains some of its earnings and pays the balance in dividends? Please note: No partial credit for the wrong selection unless you show your work. OAS 5,662 OB. 6,853 O c. 34.808 48,863 OE 66,378

Answer 1

Answer:

Correct answer is:

B. $6,853

Explanation:

Sales = $222,300

Projected Sales next year = 222300 * (1 + 13%) = 251199

∆ Sales = 251199 - 222300 = $28899

After-tax profit margin = 68177/ 222300

Dividend payout ratio = 15500 / 68177

Additional external capital = (Assets / Sales) * ∆ Sales - (Spontaneous liabilities / Sales) * ∆ Sales - Projected Sales * After-tax profit margin * (1 - Dividend Payout ratio)

= 510600 / 222300 * 28899 - 0 / 222300 * 28899 - 251199 * 68177/ 222300 * (1 - 15500 / 68177)

= $6,853

Hence option B is correct and other options A, C and D are incorrect.