Question

The most recent financial statements for Bradley, Inc., are shown here (assuming no income taxes):

Income Statement
Sales	$	9,000
Costs		(6,750	)
Net income	$	2,250

Balance Sheet
Assets	$	28,800		Debt	$	10,200
				Equity		18,600
Total	$	28,800		Total	$	28,800

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $10,350. What is the external financing needed? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.)

Answer 1

Projected sale is $10,350 which is $1350 [$10,350-$9,000] more than recent year sales of $9,000

%change in sales = (change in sales / recent year sales)×100

%change in sales = ($1350/$9000)×100=15%

pro-forma for projected income statement

Particulars	current year($)	Projected($)
Sales	9,000	10,350
Costs	(6750)	(7,762.5)...[working note 1]
Net Income	2250	2,587.5

Working note 1- costs change according to sales

Here in this case sales changes with 15%,so cost would also increase by 15%

$6,750×15% = $6,750×15/100= $1,012.5

Estimated Cost would be $6,750+$1,012.5 =$7,762.5

pro-forma of balance sheet

Assets	Current Year($)	Projected($)	Labilities	Current Year($)	Projected($)
Assets	28,800	33,120...(working note 2)	Debt	10,200	10,200
			Equity	18,600	21,187.5....(working note 3)
			External financing		1,732.5(working note 4)
	28,800	33,120		28,800	33,120

Working Notes:

2) Projected assets is to be changed according to sales proportion(15%) calculated in working note 1

So 15%change in assets = $28,800×15% =$28,800×15/100=$4,320

Projected assets = $28,800+$4,320=$33,120

3) New Equity = beginning equity + projected net income + Dividend

New Equity =$18,600+$2,587.5+0

New Equity =$21,187.5

4) External financing needed

Projected Assets = projected Liabilities

$33,120= $10,200+$21,187.5+ external finance

External finance = $33,120-($10,200+$21,187.5)

External financing = $33,120- $31,387.5= $1732.5

hence External financing needed is $1,732.5