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Sales $ 28,500   Assets $ 60,200   Debt $ 25,600   Costs 19,300   Equity 34,600   Taxable income $...

Sales $ 28,500   Assets $ 60,200   Debt $ 25,600
  Costs 19,300   Equity 34,600
  Taxable income $ 9,200     Total $ 60,200     Total $ 60,200
  Taxes (40%) 3,680
    Net income $ 5,520

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,700 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $35,625.

What is the external financing needed? (Do not round intermediate calculations.)
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Answer #1

Growth rate in sales=(35625-28500)/28500=25%

Dividend payout ratio=Dividend/Net income

=(1700/5520)=0.307971014

Sales 35625
Costs(19300*1.25) 24125
Taxable income $11500
Taxes@40%($11500*40%) $4600
Net income $6900
Less:Dividends(6900*0.307971014) $2125
Addition to retained earnings $4775

Total assets would be=$60200*1.25=$75250

Total equity would be=$34600+Addition to retained earnings

=$34600+$4775=$39375

Total assets=Total equity +Total liabilities

Hence external financing needed=$75250-$39375-$25600

=$10275.

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