Question

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

Income Statement		Balance Sheet
Sales	$5,100	Assets	$14,900	Debt	$10,300
Costs	3,430			Equity	4,600
Net income	$1,670	Total	$14,900	Total	$14,900

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $5,977.

What is the external financing needed?

Answer 1

Dividend Payout Ratio = Dividends / Net profit

= 0

Net Profit Margin = Net Income / Sales

=$ 1,670/ $ 5,100

=32.74509804%

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

= 14,900 /5,100* (5,977-5,100)

= $ 2,562.215686

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

= 0

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

=$ 5,977*32.74509804%*(1-0)

= $ 1,957.17451

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

= $ 2,562.215686 -0 - $ 1,957.17451

= $ 605.04

Answer =  $ 605.04