The most recent financial statements for GPS, Inc., are shown here:
| Income Statement | |
| Sales | $20451 |
| Costs | $10165 |
| Taxable Income | ? |
| Taxes (40%) | ? |
| Net Income | ? |
| Balance Sheet | |||
| Assets | $57251 | Debt | $21944 |
| Equity | ? | ||
Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1501 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $27432.
What is the external financing needed?
Total assets=Equity+Debt
Beginning equity=(57251-21944)=$35307
Currently:
| Sales | 20451 |
| Costs | 10165 |
| Taxable income | 10286 |
| Tax@40% | $4114.4 |
| Net income | $6171.6 |
Dividend payout ratio=Dividend/Net income
=(1501/6171.6)=0.243210836
Growth rate in sales=(27432-20451)/20451
=0.341352501
| Sales | 27432 |
| Costs(10165*1.341352501) | 13634.84817 |
| Taxable income | $13797.15183 |
| Taxes@40% | $5518.860732 |
| Net income | $8278.291098 |
| Dividend($8278.291098*0.243210836) | $2013.370099 |
| Addition to retained earnings | $6264.920999 |
Total assets would be=$57251*1.341352501)=$76793.77203
Ending equity=Beginning equity+Addition to retained earnings
35307+$6264.920999
=$41571.921
Total assets=debt+equity
Hence external financing needed=$76793.77203-$41571.921-$21944
which is equal to
=$13277.85(Approx).
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