The most recent financial statements for Martin, Inc., are shown here: Income St

Question

The most recent financial statements for Martin, Inc., are shown here: Income Statement Sales $ 24,550 Costs (14,730) Taxable income $ 9,820 Taxes (35%) (3,437) Net income $ 6,383 Balance Sheet Assets $ 93,290 Debt $ 33,000 Equity 60,290 Total $ 93,290 Total $93,290 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $955 was paid, and Martin wishes to maintain a constant payout ratio. Next year’s sales are projected to be $29,951. What is the external financing needed? (Do not round intermediate

Explanation / Answer

Current Year Next Year Sales 24550        29,951 Less:- Cost 14730        17,971 Taxable Income 9820        11,980 Less :- Income tax @ 35% 3437           4,193 PAT 6383           7,787 Less:- Dividend 955           1,165 Profit transferred to Retained Earning 5428           6,622 Dividend Payout ratio 15.0% 15.0% Current Year Next Year External Financing required Debt 33000        36,625         3,625 Equity 60290        66,912 93290 Debt Equity Ratio                  0.55             0.55

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