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

Question

The most recent financial statements for Cornwall, Inc., are shown here Balance Sheet Income Statement Sales Costs $ 7,000 Current assets $ 3,700 Current liabilities $ 2,200 3,750 7,550 $13,500 5,800Fixed assets 9,800Long-term debt Taxable income $ 1,200 Equity Taxes (34%) 408 Total $13,500 Total Net income 792 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 10 percent 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

Total assets would be=(13500*1.1)=$14850

Total current liabilities=(2200*1.1)=2420

Total liabilities would be=(2420+3750)=6170

Total liabilities and equity=$6170+(7550+609.84)=$14329.84

Hence Total assets=Total liabilities and equity

Hence external financing needed=(14850-14329.84)

=$520.16.

Sales(7000*1.1) 7700 Costs(5800*1.1) 6380 Taxable income 1320 Taxes@34% 448.8 Net income 871.2 Less:Dividends@30% 261.36 Addition to retained earnings $609.84

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