Question

what is the external financing needed?

Vall Semester 2019 Esam 2-Chapters 4-s 4The Pepper Mill in eperating at full capacity, Assets, cots, and current liabilies vary directly wih sales The current liahilies of 53650, long-em debe of $18,100, ewners equity of $27,150, and dividends of $1925 dividend paout ratio is constand The fiem has sales ef 542 700, net income of S5.5on, wal ts of S5,on Assume the sales will grow at 14% Prepare the Curent Income Statement and Balance Sheet mare shnt SAles Pean St 4ae ASseds LessCos Tonl Aets ACCTO N/I L+E Exam SiSeo Le CL Studer La Hn Do R.E. 27ASo OE Tohl L toE Poir 42 Prepare the Pro-Forma Income Statement and Balance Sheet Tof Dne Bace shear senent ns i) Shles 3 le) Le CSt) NI 4% Acts (42) Lale 14% L+E 14% 3650 CR ২s) La- DE What is the dividend payout ratio? Toml L+E I1125/5,S00 35% What is the addition-to-retained earmings? Pre arm (4,075.5 pe Pro Fan sales Co4s N 4270-Diwend 4076 (3,575 What s the extemal financing need?

Answer 1

Additional Funds Needed = [A0 x (ΔS / S0)] - [L0 x (ΔS / S0)] - [S1 x PM x b]

Where,
A_o = current level of assets
L_o = current level of liabilities
ΔS/S_o = percentage increase in sales i.e. change in sales divided by current sales
S₁ = new level of sales
PM = profit margin
b = retention rate = 1 - payout rate

Dividend Payout Ratio = Dividends Paid / Net Income = $1,925 / $5,500 = 0.35, or 35%

Profit Margin = Net Income / Sales = $5,500 / $42,700 = 0.1288, or 12.88%

AFN = [$48,900 x 0.14] - [$3,650 x 0.14] - [($42,700 * 1.14) x 0.1288 x (1 - 0.35)]

= $6,846 - $511 - $4,075.50 = $2,259.50