Answer:
The external financing needed for next year is $1,766,004.
Explanation:
The external financing needed for next year can be calculated using the following formula:
External financing needed = ((Total assets / Sales) * Change in sales) - ((Short-term liabilities / Sales) * Change in sales) - ((Projected sales * Profit margin) * (1 - Dividend payout ratio)) ................... (1)
Where;
Total assets = $24,705,000
Sales = $30,500,000
Change in sales = Sales * Sales growth rate = $30,500,000 * 20% = $6,100,000
Short-term liabilities = Accounts payable = $6,405,000
Projected sales = Sales * (1 + Sales growth rate) = $30,500,000 * (1 + 20%) = $36,600,000
Profit margin = Net income / Sales = $2,630,550 / $30,500,000 = 0.0862475409836066
Dividend payout ratio = Dividends / Net income = $1,052,220 / $2,630,550 = 0.40
Substituting all the values into equation (1), we have:
External financing needed = (($24,705,000 / $30,500,000) * $6,100,000) - (($6,405,000 / $30,500,000) * $6,100,000) - (($36,600,000 * 0.0862475409836066) * (1 - 0.4))
External financing needed = $1,766,004
Therefore, the external financing needed for next year is $1,766,004.
