Question

The most recent financial statements for Martin, Inc., are shown here: Income Statement Sales $16,000 Costs...

The most recent financial statements for Martin, Inc., are shown here:

Income Statement
Sales $16,000
Costs −9,600
Taxable income $6,400
Taxes (21%) −1,344
Net income $5,056
Balance Sheet
Assets $44,800 Debt $22,000
Equity 22,800
Total $44,800 Total $44,800

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $970 was paid, and Martin wishes to maintain a constant payout ratio. Next year’s sales are projected to be $19,680. What is the external financing needed? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Answer #1

Growth rate in sales=(19680-16000)/16000

=23%

Dividend payout ratio=Dividend payout/Net income

=970/5056

=0.191851266

Sales 19680
Costs(9600*1.23) 11808
Taxable income 7872
Taxes(7872*21%) 1653.12
Net income 6218.88
Less:Dividends(6218.88*0.191851266) 1193.1
Addition to retained earnings 5025.78

Total assets would be=44800*1.23=$55104

Total equity would be=22800+Addition to retained earnings

=22800+5025.78=$27825.78

Total assets=Total liabilities+Total equity

Hence external financing needed=55104-(27825.78+22000)

=$5278.22

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