Question

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

Income Statement				Balance Sheet
Sales	$	9,300		Current assets	$	4,050		Current liabilities	$	2,625
Costs		6,550		Fixed assets		9,300		Long-term debt		4,190
Taxable income	$	2,750						Equity		6,535
Taxes (22%)		605		Total	$	13,350		Total	$	13,350
Net income	$	2,145

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 44 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 17 percent.

What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Sales(9300*1.17)	10881
Costs(6550*1.17)	7663.5
Taxable income	$3217.5
Taxes($3217.5*22%)	$707.85
Net income	$2509.65
Less:Dividends($2509.65*44%)	$1104.246
Addition to retained earnings	$1405.404

Total assets would be=$13350*1.17=$15619.5

Total current liabilities=$2625*1.17=$3071.25

Total equity would be =$6535+Addition to retained earnings

=$6535+$1405.404

=$7940.404

Total assets =Total liabilities+Total equity

Hence external financing needed=$15619.5-(3071.25+4190)-7940.404

which is equal to

=$417.85(Approx).