Answer:
EXTERNAL FINANCING NEEDED IS $383.736
Explanation:
For calculating the external financing , we first have to take out what the sales , cost , asset , liability will be when the sales of the company increases by 17%, so now we have to calculate all the values -
SALES = $11,100 X 1.17 ( multiplying by 17% because of increase in sale)
= $12,987
COST = $7900 X 1.17 (multiplying by 17%)
= $9243
INCOME BEFORE TAX = SALES - COST
= $12,987 - $9243
= $3744
TAXES AT 24% ON TAXABLE INCOME OF $3744
= .24 X $3744 =$ 898.56
Now subtracting this amount from taxable income
$3744 - $898.56 = $2,845.44
Next step would be of paying dividend payout ratio from it
40% of $2,845.44 = .40 x $2845.44
= $1138.176
RETAINED EARNINGS = Taxable income - Dividend payout
= $2845.44 - $1138.176
= $1707.264
NOW TOTAL ASSETS WOULD BE = $15,600(5400+10200) X 1.17
= $18,252
IT IS GIVEN IN THE QUESTION THAT COST, ASSET, LIABILITY(CURRENT) ARE ALL PROPORTIONAL TO SALES.
CURRENT LIABILITY = $3300 X 1.17
= $3861
TOTAL COST = LONG TERM LIABILITY + CURRENT LIABILITY
=$4820 + $3861
= $8681
TOTAL EQUITY EQUAL = $7480 + $1707.264 (RETAINED EARNINGS)
= $9187.264
EXTERNAL FINANCING = ASSET - LIABILITY - EQUITY
= $18,252 - $8681 - $9187.264
= $383.736
