Question

The most recent financial statements for Cardinal, Inc., are shown here:   Income Statement Balance Sheet   Sales...

The most recent financial statements for Cardinal, Inc., are shown here:
  Income Statement Balance Sheet
  Sales $23,600     Assets $115,000     Debt $46,600  
  Costs

16,000  

   Equity 68,400  
  Taxable income $7,600       Total

$115,000  

     Total

$115,000  
  Taxes (24%) 1,824  
    Net income

$5,776  

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,480 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $28,200.

What is the external financing needed?
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Homework Answers

Answer #1

Net Profit Margin = Net Profit / Sales

=5776/ 23600

= 24.47457627%

Dividend Payout Ratio = Dividends / Net profit

=1480/ 5776

= 25.6232687%

Increase in Assets = Total Assets / Current Sales * Change in Sales

= 115000 /23600* (28200-23600)

= 22,415.25424

Increase in Current Liabilities = Current Liabilities / Current Sales * Change in Sales

= 0

Earnings Retained = revised sales * Net profit margin * (1- dividend payout ratio)

=28200*24.47457627%*(1-25.6232687%)

= $  5,133.355931820710

External Financing Needed = Increase in Assets - Increase in Current Liabilities - Earnings Retained

=22,415.25424-0-5,133.355931820710

= $ 17,281.90

Hence the correct answer is $ 17,281.90

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