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

The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet Sales $ 32,200 Assets $ 75,600 Debt $ 38,800 Costs 18,550 Equity 36,800 Taxable income $ 13,650 Total $ 75,600 Total $ 75,600 Taxes (22%) 3,003 Net income $ 10,647 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $4,000 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $37,030. What is the external financing needed? (Do not round intermediate calculations.)

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Answer #1

Growth rate in sales=(37030-32200)/32200=15%

Dividend payout ratio=Dividends/Net income

=(4000/10647)=0.375692683

Sales 37030
Costs(18550*1.15) $21332.5
Taxable income $15697.5
Taxes@22% $3453.45
Net income $12244.05
Less:dividends(0.375692683*12244.05) $4600
Addition to retained earnings $7644.05

Total assets would be=$75600*1.15=$86940

Total equity would be=$36800+Addition to retained earnings

=$36800+$7644.05=$44,444.05

Total assets=Total liabilities+Total equity

Hence external financing needed=$86940-$$44,444.05-$38800

which is equal to

=$3695.95

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