Question

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

The most recent financial statements for Tile Inc., are shown here:
  Income Statement Balance Sheet
  Sales $23,300     Assets $125,000     Debt $32,600  
  Costs

16,800  

   Equity 92,400  
  Taxable income $6,500       Total

$125,000  

     Total

$125,000  
  Taxes (30%) 1,950  
    Net income

$4,550  

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,480 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $28,900.
Required:

What is the external financing needed?

Multiple Choice

$22,371

$26,235

$21,083

$19,795

$237,051

Business   Finance   
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Homework Answers

Answer #1

Growth rate=(28900-23300)/23300

=0.240343347

Dividend payout ratio=Dividends/Net income

=(1480/4550)=0.325274725

Sales 28900
Costs(16800*1.240343347) 20837.76823
Taxable income $8062.23177
Taxes@30% $2418.669531
Net income $5643.562239
LEss:dividends($5643.562239*0.325274725) $1835.708155
Addition to Retained earnings $3807.854084

Total equity would be=$92400+Addition to Retained earnings

=(92400+$3807.854084)=$96207.85408

Total assets=$125000*1.240343347=$155042.9184

Total assets=debt+equity

Hence external financing needed=$155042.9184-($96207.85408+32600)

=$26235(Approx).

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