Question

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

The most recent financial statements for GPS, Inc., are shown here:
  Income Statement Balance Sheet
  Sales $22,700     Assets $114,000     Debt $29,600  
  Costs

16,600  

   Equity 84,400  
  Taxable income $6,100       Total

$114,000  

     Total

$114,000  
  Taxes (35%) 2,135  
    Net income

$3,965  

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,610 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $28,400.

What is the external financing needed?
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Homework Answers

Answer #1

Growth rate in sales=(28400-22700)/22700

=0.251101321

Dividend payout ratio=Dividend/Net income

=(1610/3965)=0.406052963

Sales 28400
Costs(16600*1.251101321) 20768.28193
Taxable income 7631.71087
Taxes@35% 2671.098805
Net income $4960.612065
Less:dividends($4960.612065*0.406052963) $2014.271227
Addition to retained earnings $2946.340838

Ending equity=$84400+Addition to retained earnings

=(84400+$2946.340838)=$87346.34084

Total assets would be =$114000*1.251101321)=$142625.5506

Total assets=Equity+debt

Hence external financing needed=$142625.5506-$87346.34084-$29600

which is equal to

=$25679.21(Approx).

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