Question

The most recent financial statements for Assouad, Inc., are shown here: Income Statement Sales Costs Balance Sheet Current 4,800 liabilities Current $3000 $10.300 Current Long term 4,540 7,300 Fixed ässets 9,800 . debt Taxable$3,000 income Equity 7060 Taxes (24%) 720 Total $14.600 Total $14.600 Net income $ 2,280 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 19 percent. What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 3216.) External financing needed

Answer 1

Increased sales=$10,300*(1+0.19)

=$10,300*(1.19)

=$12,257

*Formula for increased sales =present sales*(1+expect growth rate/100)

Increased cost=$7300*(1+0.19)

=$7300*(1.19)

=$8687

Taxable income=$12,257-$8687

=$3,570

Tax on income(24%)=$3570*24%

=$856.8

Net Income =$2713.2

Dividend Payout Ratio is 40%

Dividends=$2713.2*40%

=$1085.28

Additions to Retain Earnings=$2713.2 - $1085.28

=$1,627.92

Proforma of asstes =19%*(current assets+ fixed assets)

=19%*($4800+$9800)

=19%*($14600)

=$2774

Total increased assets =$14600+$2774

=$17,374

Pro forma of current liabilities=19%*($3000)

=$570

Total Increasedliabilities= $570+$3000+$4540+$7060+$1627.92

=$16,797.92

Required External Financing =total increased assets- total incresed liabilities

=$17,374 -$16797.92

=$576.08