Question

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

  

Income Statement				Balance Sheet
Sales	$	40,600		Assets	$	150,000		Debt	$	44,500
Costs		27,500						Equity		105,500
Taxable income	$	13,100		Total	$	150,000		Total	$	150,000
Taxes (25%)		3,275
Net income	$	9,825

  

Assets and costs are proportional to sales; debt and equity are not. A dividend of $3,550 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $45,878.

  

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

Answer 1

Growth rate in sales=(45,878-40600)/40600=13%

Dividend payout ratio=Dividend payout/Net income

=(3550/9825)=0.361323155

Sales	45,878
Costs(27500*1.13)	31075
Taxable income	14803
Taxes(14803*25%)	3700.75
Net income	11,102.25
Less:Dividends(0.361323155*11,102.25)	4011.5
Addition to retained earnings	7090.75

Total assets would be=150,000*1.13=$169500

Total equity would be=105500+Addition to retained earnings

=105500+7090.75=$112590.75

Total assets=Total liabilities+Total equity

Hence external financing needed=(169500-112590.75-44,500)

=$12409.25