The most recent financial statements for ABC, Inc., are shown here: Assets, cost

Question

The most recent financial statements for ABC, Inc., are shown here:

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 16 percent.

What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The most recent financial statements for ABC, Inc., are shown here:

Explanation / Answer

Total assets would be=$14100*116%=$16356

Total equity=$6850+Addition to retained earnings

=(6850+1406.152)=$8256.152

Total current liabilities=$2850*1.16=$3306

Total assets=Total liabilities+Total equity

Hence external financing needed==$16356-$8256.152-$3306-$4400

which is equal to

=$393.85(Approx).

Sales(9900*1.16) $11484 Costs(7000*1.16) $8120 Taxable income $3364 Taxes(24%) $807.36 Net income $2556.64 Less:dividends(2556.64*45%) $1150.488 Addition to retained earnings $1406.152

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