Sales are projected to increase 25%. The dividend payout ratio is expected to re
ID: 2772842 • Letter: S
Question
Sales are projected to increase 25%. The dividend payout ratio is expected to remain constant and the company is operating at full capacity. Prepare the current and pro forma income statements and balance sheets, and calculate how much external financing is needed.
Accounts Payable
$6,000
Accounts Receivable
$5,000
Cash
$3,000
Common Stock
$13,000
Costs
$17,000
Fixed Assets
$30,000
Inventory
$7,000
Long-Term Debt
$15,000
Notes Payable
$3,000
Retained Earnings
$8,000
Sales
$20,000
Tax Rate
34%
Dividend Payout Ratio
40%
Accounts Payable
$6,000
Accounts Receivable
$5,000
Cash
$3,000
Common Stock
$13,000
Costs
$17,000
Fixed Assets
$30,000
Inventory
$7,000
Long-Term Debt
$15,000
Notes Payable
$3,000
Retained Earnings
$8,000
Sales
$20,000
Tax Rate
34%
Dividend Payout Ratio
40%
Explanation / Answer
Income statement Current Next year Sales 20000 25000 Cost 17000 21250 Gross profit 3000 3750 Taxes 1020 1275 Net income 1980 2475 Retained earnings 1485 (60% of net income) Balance sheet Current Next year Cash 3000 3750 Inventory 7000 8750 Account receivables 5000 6250 Current asset 15000 18750 Fixed assets 30000 37500 Total asset 45000 56250 Accounts payable 6000 6000 Notes payable 3000 3000 Current liabilities 9000 9000 Long term debt 15000 15000 Total liabiities 24000 24000 Common stock 13000 13000 Retained earnings 8000 9485 Total funding required for next year = Total assets - total equity & liabilities Total equity 21000 22485 9765 Total equity & liabilites 45000 46485
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