Answer:
Company Y
The external financial needed is:
= $1,290.
Explanation:
a) Data and Calculations:
Company Y's financial statements:
Income Statement
Sales $7,900
Costs 5,500
Taxable income $2,400
Taxes (25%) 600
Net income $1,800
Balance Sheet
Current assets $3,900
Fixed assets 8,600
Total assets $12,500
Current liabilities $2,100
Long-term debt 3,700
Equity 6,700
Total liab. & equity $12,500
Projected Income Statement:
Sales $9,085 ($7,900 * 1.15)
Costs 6,325 ($5,500 * 1.15)
Taxable income $2,760
Taxes (25%) 690
Net income $2,070
Dividends = 40% $828
Retained earnings $1,242
Projected Balance Sheet
Current assets $4,485 ($3,900 * 1.15)
Fixed assets 9,890 ($8,600 * 1.15)
Total assets $14,375
Current liabilities $2,415 ($2,100 * 1.15)
Long-term debt 4,018 ($14,375 - 2,415 - 7,942)
Equity 7,942 ($6,700 + $1,242)
Total liab. & equity $14,375
Working capital = $2,070 ($4,485 - $2,415)
Capital expenditure = $1,290 ($9,890 - 8,600)
External financing needed = Net income minus (working capital plus capital expenditure)
= $2,070 - ($2,070 + 1,290)
= $1,290
