Question

The most recent financial statements for Assouad, Inc., are shown here: Income Statement Sales $9,500 $ 2,700 Balance Sheet Current Current $ 4,200 assets liabilities Fixed assets 9,400 Long-term debt Costs 6,700 4,260 Taxable income $2,800 Equity 6,640 672 Total $13,600 Taxes (24%) Total $13,600 Net Income $ 2,128 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 18 percent What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) External financing needed

Answer 1

Answer:

External financing needed

$329.82

Explanation:

Next year taxable income = Recent year taxable * 118%

= $2,800 * 118% = $3,304

Next year net income = Next year taxable income * (1 - tax rate)

= $3,304 * ( 1 - 0.24) = $2,511.04

Next year dividend payout = Next year net income * 35 %

= $2,511.04 * 35 % = $878.864

Next year increase in retained earnings = Next year net income - Next year dividend payout

= $2,511.04 - $878.864 = $1,632.176

a) Next year total assets = Recent total assets * 118%

= $13,600 * 118% = $16,048

b) Next year current liabilities = Recent current liabilities * 118%

= $2,700 * 118% = $3,186

c) Next year long term liabilities (same) = $4,260

d) Next year equity = Recent equity + Next year increase in retained earnings

= $6,640 + $1,632.176 = $8,272.176

Calculation of external financing needed.

a) Next year total assets	$16,048
Less: b) Next year current liabilities	($3,186)
Less: c) Next year long term liabilities	($4,260)
Less: d) Next year equity	($8,272.176)
External financing needed	$329.82