Question

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

  

Income Statement				Balance Sheet
Sales	$	33,600		Assets	$	54,100		Debt	$	22,100
Costs		25,600						Equity		32,000
Taxable income	$	8,000		Total	$	54,100		Total	$	54,100
Taxes (40%)		3,200
Net income	$	4,800

  

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,500 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $36,960.

  

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

  

External financing needed

$

Answer 1

Growth rate in sales=(36960-33600)/33600=10%

Dividend payout ratio=dividend/Net income

(1500/4800)=0.3125

Sales	36960
Costs(25600*1.1)	28160
Taxable income	8800
Taxes(8800*40%)	3520
Net income	$5280
Less:Dividends(5280*0.3125)	1650
Addition to retained earnings	$3630

Total assets would be=$54100*1.1=$59510

Total equity=$32000+Addition to retained earnings

=(32000+3630)=$35630

Total assets=Total liabilities+Total equity

Hence external financing needed=$59510-$35630-22100

=$1780