Question

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

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?

Homework Answers

Answer #1

Net Profit Margin = Net Income/ Sales

=1670/ 5100

=32.74509804%

Dividend Payout Ratio = Dividends / Net profit

=0/ 1670

= 0

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

= 14900 /5100* (5977-5100)

=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)

=5977*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

Hence the correct answer is $ 605.04

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