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

Question

The most recent financial statements for Assouad, Inc., are shown here Balance Sheet Income Statement Sales Costs Current 3,750 liabilities Current $8,900 assets $2,475 Long-term 6,250 Fixed assets 9,100 4,050 Taxable income $2,650 Equity 6,325 Taxes (22%) 583 Total $12,850 Total $12,850 Net income $2,067 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 15 percent. What is the external financing needed? (Do not round Intermedlate calculatlons and round your answer to 2 decimal places, e.g., 32.16.) External financing needed

Explanation / Answer

Cost in the income statement for last year is 70.22% of sales, current year as well the cost is of the same proportion. All the items are calculated as such.
Sales for this year has increased to 1.15*8900 = $10235.

Dividend of $950.82 has been paid to its investors, the remaining $1426.23 is the company's retained earnings which is being added to the equity in the balance sheet.

Refer to the Income statement for the current year below:

For the balance sheet as well percentage proportion of assets and current liabilities as compared to sales is taken and then current year calculations are done. The difference in the Total Asset and Total liabilities+Equity before external financing was = $14777.50 - $14647.48 = $130.02

The company needs an external financing of $130.02, which is added on the liabilities side of the balance sheet.

Last Year Comparable Income statement Current year Income Statement Sales 8900 100% 10235 Costs 6250 70.22% 7187.5 taxable Income 2650 29.78% 3047.5 Taxes (22%) 583 6.55% 670.45 Net income 2067 23.22% 2377.05 Dividend @40% 950.82 Retained Earnings 1426.23

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