The most recent financial statements for Dockett, Inc., are shown here (assuming

ID: 2645036 • Letter: T

Question

The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes):

Income Statement Balance Sheet

Sales $ 6,800 Assets$19,350 Debt $6,150

Costs 4,750 Equity$13,200

Net income$ 2,050 Total$19,350 Total$ 19,350

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year

% of costs to sales = $4,750/$6,800 = 0.698529

% of assets to sales = $19,350/$6,800 = 2.845588

Next Year's sales =$8,024

costs when sales =$8,024 is $8,024 * 0.698529 =5,605

Net income = projected sales - projected costs.

Revised net income = $8,024 - $5,605 = $2,419.

Revised assets due to increase in sales = $8,024 * 2.845588 =$22,833

Increase in equity due to addition of projected net income = existing equity + projected net income.

=$13,200 + $2,419 =$15,619.

Revised debt needs to be = Total assets - revised equity = $22,833 - $15,619 = $7,214.

External financing needed = Revised debt - existing debt

External financing needed = $7,214 - $6,150 =$1,064.

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