Question

The most recent financial statements for Assouad, Inc., are shown here: Income Statement Balance Sheet   Sales...

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

Income Statement Balance Sheet
  Sales $ 9,100 Current assets $ 3,900 Current liabilities $ 2,550
  Costs 6,400 Fixed assets 9,200 Long-term debt 4,120
  Taxable income $ 2,700 Equity 6,430
  Taxes (24%) 648   Total $ 13,100   Total $ 13,100
    Net income $ 2,052

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 16 percent.

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

Homework Answers

Answer #1

External financing needed = $378.82

Explanation;

External financing needed = Increase in assets – Increase in current liabilities – Increase in retained earnings

Projected Income Statement

Sales ($9100 * 1.16)

$10556

Costs ($6400 * 1.16)

$7424

Taxable income

$3132

Taxes

$751.68

Net income

$2380.32

Dividends ($2380.32 *0.45)

$1071.14

Retained earnings

$1309.18

Increase in assets ($13100 * 0.16) = $2096

Increase in current liabilities ($2550 * 0.16) = $408

Hence, external financing needed = $2096 – $408 – $1309.18

= $378.82

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