Consider the following simplified financial statements for the Fire Corporation (assuming no income taxes):
Income Statement |
|
Sales |
$32033 |
Costs |
$26288 |
Balance Sheet |
|||
Assets |
$59493 |
Debt |
$17290 |
Equity |
? |
The company has predicted a sales increase of 7 percent. Assume Fire pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.
Determine the external financing needed. (Negative amount should be indicated by a minus sign.)
(Omit the "$" sign and commas in your response. Enter your answer rounded to 2 decimal places. For example, $1,200.456 should be entered as 1200.46.)
Assets=debt+equity
Hence current equity=(59493-17290)=$42203
Sales(32033*1.07) | 34275.31 |
Costs(26288*1.07) | 28128.16 |
Net income | $6147.15 |
Less:Dividends($6147.15*0.5) | $3073.575 |
Addition to retained earnings | $3073.575 |
Total assets would be=$59493*1.07=$63657.51
Total equity at end=Beginning equity+Addition to retained earnings
=(42203+$3073.575)=$45276.575
Assets=debt+equity
Hence external financing needed=$63657.51-$45276.575-$17290
which is equal to
=1090.94(Approx).
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