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

Question

The most recent financial statements for Hornick, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Sales $ 6,700 Assets $ 22,050 Debt $ 8,050 Costs 3,850 Equity 14,000 Net income $ 2,850 Total $ 22,050 Total $ 22,050 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $7,906. What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) External financing needed $

Explanation / Answer

Increase in asset = old asset*new sales/old sales-old asset

=22050*7906/6700-22050 = 3969

This is the additional amount to be funded. But some of it will be funded internally using net income

New net income = old net income*new sales/old sales

=2850*7906/6700

=3363

External funding required =additional amount to be funded-(net income-dividend) = 3969-(3363-0) = 606

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