Question

The most recent financial statements for Reply, Inc., are shown here: Income Statement Balance Sheet Sales $ 23,600 Assets $ 54,300 Debt $ 20,300 Costs 14,600 Equity 34,000 Taxable income $ 9,000 Total $ 54,300 Total $ 54,300 Taxes (40%) 3,600 Net income $ 5,400 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,500 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $26,904. What is the external financing needed? (Do not round intermediate calculations.)

Answer 1

Answer:

external financing needed  $4,296

Explanation:

Sales                   26,904

Cost                      16,644

(14.600 / 23,600 x 26,904)

Taxable Income   10,206

Tax Income (40%)  4,104

Net Income            6,156

Dividends: (same payout ratio is maintaned)

 2,500 / 5,400 x 6,156 = 2,850

Assets: (proportional to sales)

54,300 / 23,600 x 26,904 =   61902

Equity:

34,000 + 6,156 net income - 2,850 dividends = 37306

Liabilities: 61,902 - 37,306 =  24,596

Previous liaiblities  20,300

Addional debt taken: 24,596 - 20,300 = 4296