The most recent financial statements for Cornwall, Inc., are shown here: Assets,

Question

The most recent financial statements for Cornwall, Inc., are shown here:

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 20 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent.

What is the external financing needed?

Income Statement Balance Sheet   Sales $ 7,400 Current assets $ 4,100 Current liabilities $ 2,200   Costs 6,000 Fixed assets 9,800 Long-term debt 3,750   Taxable income $ 1,400 Equity 7,950   Taxes (34%) 476   Total $ 13,900   Total $ 13,900     Net income $ 924

Explanation / Answer

Ans) CORNWALL INC. Sales $    7,400.00 Cost $    6,000.00 Taxable Income $    1,400.00 Tax $        476.00 Net Income $        924.00 Dividend $        184.80 Balance sheet Assets $ 13,900.00 Current Liabilities $    2,200.00 Debt $    3,750.00 Equity $    7,950.00 Total $ 13,900.00 Total $ 13,900.00 Performa Income Statement Increase in Sales $    8,510.00 Cost $    6,900.00 Taxable Income $    1,610.00 Tax $        547.40 Net Income $    1,062.60 Performa Balance Sheet Assets $ 15,985.00 Current Liability $    2,530.00 Equity $    8,800.08 Debt $    4,654.92 Total $ 15,985.00 Total $ 15,985.00 Payout Ratio is constant so dividend is= $        212.52 The addition to retained earnings is $        850.08 New Equity Balance is= $    8,800.08 External financing needed= $    4,654.92

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