Please show all work! Jim\'s Espresso expects sales to grow by 10.0% next year.

Question

Please show all work!

Jim's Espresso expects sales to grow by 10.0% next year. Jim's changes its payout ratio from 90% to 70% of net income next year. When the payout ratio was 90%, there was excess financing in the amount of $3,742. Jim's developed the pro forma financial statements given here?to reflect the change in the payout ratio to 70%. How will the net new financing change? Hint: Determine the difference in financing by subtracting the financing required at 90% ($3,742) from the financing required at 70%. The financing required at 70% is $1. (Round to the nearest dollar)

Explanation / Answer

Based on the given data, the previous year's excess financing at 90% payout amounted to -$3742.

In the current year, based on the pro -forma financial statements available, the excess financing at 70% payout = 34,100 - 51,227 = -$17,127

Therefore the company has an excess finance of -17127-(-3742) = -$13,385 if the payout is decreased to 70% instead.

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