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In the most recent year wholesome Foodsellers reported $8380 in sales with a 22% profit margin. The firm has $16126 in assets. Next year the firm plans a 9% increase in sales. Assets and costs are proportional to sales. Debt and equity are not. The company doesnt pay dividends. What is the external financing need for the next year? Select one: -558 0-392 14116 1285 O 3461

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Answer #1

The correct answer is -558...

Explanation:

Growth in assets to be financed is 16,126*9% = $1,451

Net Income this year is 8,380*22% = $1,844

It will grow by 9% and will be $2,009

All of the net income will be retained and added to retained earnings. This will be the only source of growth of the equity.Debt will remain the same.

Hence the required external financing is the difference between the growth in assets and the growth in equity, 1,451 -2,009= -558

The correct answer is: -558.

Thanks

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