Answer:
$5,006.07
Explanation:
The external financing needed = Projected Increase in Assets - Increase in Liabilities - Increase in Retained Earnings
Projected Increase in Asset = Assets Value*Sales Growth Rate
Projected Increase in Assets = $364,720 * 20%
Projected Increase in Assets = $72,944
Increase in Liabilities = Liabilities * Sales Growth Rate
Increase in Liabilities = $69,600 * 20%
Increase in Liabilities = $13,920
<em>To calculate the Increase in Retained Earning, the below calculations are needed:</em>
a. Profit Margin Rate = Net Income / Sales * 100
Profit Margin Rate = 75,000 / 751,000 * 100
Profit Margin Rate = 9.99%
b. Dividend Payout Ratio = Dividend / Net Income * 100
Dividend Payout Ratio = 30,000 / 75,000 * 100
Dividend Payout Ratio = 0.4
Dividend Payout Ratio = 40%
Retention Rate = 1 - Dividend Payout Ratio
Retention Rate = 1 - 0.40
Retention Rate = 0.60
Retention Rate = 60%
c. Expected Sales = $751,000 * 1.20 = $901,200
So, the Increase in Retained Earning = Expected Sales * Profit Margin * Retention Rate = $901,200 *9.99% * 60% = $54,017.93
Therefore, External Fund Needed = $72,944 - $13,920 - $54,017.93 = $5,006.07
