The most recent financial statements for GPS, Inc., are shown here: Income Statement Balance Sheet Sales $22,300 Assets $108,000 Debt $38,600 Costs 16,700 Equity 69,400 Taxable income $5,600 Total $108,000 Total $108,000 Taxes (35%) 1,960 Net income $3,640 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,660 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $29,200. Required: What is the external financing needed?
Dividend payout ratio=Dividend/Net income
=(1660/3640)=0.456043956
Growth rate in sales=(29200-22300)/22300=0.30941704
| Sales | 29200 |
| Costs(16700*1.30941704) | $21867.26457 |
| Taxable income | $7332.73543 |
| Taxes@35% | $2566.457401 |
| Net income | $4766.27803 |
| Less:dividends($4766.27803*0.456043956) | $2173.632288 |
| Addition to retained earnings | $2592.645742 |
Total assets would be=$108000*1.30941704=$141417.0403
Total equity=$69400+Addition to retained earnings
=(69400+$2592.645742)=$71992.64574
Total assets=Total equity+Total liabilities
Hence external financing needed=$141417.0403-$71992.64574-$38600
$30824.39(Approx).
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