The most recent financial statements for GPS, Inc., are shown here: Income State

Question

The most recent financial statements for GPS, Inc., are shown here: Income Statement Balance Sheet $22,800 Assets $124,000 Debt Sales Costs Taxable income Taxes (35%) $37,600 86,400 $124,000 15,800 $7,000 Tota Equity $124,000 Tota 2,450 $4,550 Net income Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,480 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $28,600. Required: What is the external financing needed? O $27,693 O $23,857 O $22,579 $21,30o $226,323

Explanation / Answer

Dividend payout ratio=Dividend/net income

=(1480/4550)=0.325274725

Growth rate in sales=(28600-22800)/22800=25.4385964%(Approx).

Total assets would be=$124000*1.254385964)=$155,543.8595

Total equity=$86400+Addition to retained earnings

=(86400+$3850.964912)=$90250.96491

Total assets =total debt+total equity

Hence external financing needed=$155,543.8595-($90250.96491+$37600)

which is equal to

=$27693(Approx).

Sales 28600 Costs(15800*1.254385964) $19819.29825 Taxable income $8780.70175 Taxes@35%($8780.70175*35%) $3073.245613 Net income $5707.456138 Less:dividend payout($5707.456138*0.325274725) $1856.491226 Addition to retained earnings $3850.964912(Approx)

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