Question

The most recent financial statements for Cooper, Inc., are shown here (assuming no income taxes) ; Sales $5,700 ,costs 3,820 ,Net income $1,880 ,Assets $14.100 , Total $14.100 ,  Debt $ 6,300 , Equity 7,800 , Total $14.100

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $6,669. What is the external financing needed? 

Answer 1

Calculate External Financing Needed:

Formula: EFN = Total assets - Total liabilities and equity

Next year projected sales are $ 6,669

The current year's sales are $ 5,700.

Increase in Sales =$ 6,669-$ 5,700/$ 5,700

Increase in Sales =17 %

From the given data, assets and costs are proportional to sales. Therefore, expenses and assets increase with sales ( 17 %).

Next year's income statement and balance sheet are below:

If no dividends are paid, the equity account will increase the by net income New Equity =$ 7,800+2,200

New Equity =$ 10,000

External Financing needed (EFN) is:

EFN = Total assets - Total liabilities and equity 

EFN =$ 16,497-16,300 

=$ 197