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

Question

The most recent financial statements for Martin, Inc., are shown here Income Statement Sales Costs Taxable income Taxes ( 3 5 % ) $16,000 9.600 $ 6,400 (2,240) Net income $ 4,160 Balance Sheet $44,800 Debt $22,000 22,800 $44,800 Assets Equity Total $44,800 Total Assets and costs are proportional to sales. Debt and equity are not. A dividend of $970 was paid, and Martin wishes to maintain a constant payout ratio. Next year's sales are projected to be $19,680. What is the external financing needed? (Do not round intermediate calculations. Round your answer to 2 decimal places.) EFN

Explanation / Answer

Growth rate=(19680-16000)/16000=23%

Dividend payout ratio=Dividends/Net income

=(970/4160)=0.23317(Approx)

Total assets would be=(44800*1.23)=$55104

Total assets=Debt+equity

55104=22000+(22800+3923.7)

Hence external financing needed=55104-[22000+(22800+3923.7)]

which is equal to

=$6380.30

Sales 19680 Costs(9600*1.23) (11808) Taxable income 7872 Taxes@35% (2755.2) Net income 5116.8 Less:Dividends(0.23317*5116.8) 1193.1 Addition to retained earnings 3923.70

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