Question

Question 1

The most recent financial statements for Heine, Inc., are shown here:

Income Statement				Balance Sheet
Sales	$	23,700		Assets	$	55,200		Debt	$	20,400
Costs		14,400						Equity		34,800
Taxable income	$	9,300		Total	$	55,200		Total	$	55,200
Taxes (40%)		3,720
Net income	$	5,580

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,800 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $29,625.

What is the external financing needed? (Do not round intermediate calculations.)

  

External financing needed

$

Question 2

Al's Sport Store has sales of $2,830, costs of goods sold of $2,120, inventory of $507, and accounts receivable of $419. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

Multiple Choice

• 119.3

• 65.4

• 87.3

• 86.1

• 119.5

Answer ____________

Answer 1

1.Dividend payout ratio=Dividend/Net income

=(1800/5580)=0.322580645

Growth rate in sales=(29625-23700)/23700

=25%

Sales	29625
Costs(14400*1.25)	18000
Taxable income	11625
Tax@40%	4650
Net income	$6975
Less:dividend(6975*0.322580645)	($2250)
Addition to retained earnings	$4725

Total assets would be=$55200*1.25=$69000

Total equity=$34800+Addition to retained earnings

=$34800+$4725=$39525

Total assets =Total equity+Total liabilities

Hence external financing needed=$69000-39525-$20400

=$9075

b.

Days on average required by firm to sell its inventory=(inventory/Cost of goods sold)*365 days

=(507/2120)*365

=87.3 days(Approx).