Question

Rossiter's currently has total assets of $203,000, long-term debt of $78,400, and current liabilities of $36,700. The dividend payout ratio is 25 percent and the profit margin is 5.8 percent. Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity. What is the external financing need if the current sales of $185,000 are projected to increase by 5 percent

Answer 1

Answer:

-$134.88

Explanation:

Calculation for the external financing need

First step is to calculate the Projected total assets

Projected total assets = 1.05 × $203,000

Projected total assets = $213,150

Second step is to calculate Projected current liabilities

Projected current liabilities = 1.05 × $36,700

Projected current liabilities = $38,535

Third step is to calculate Current stockholders' equity

Current stockholders' equity = $203,000 - $36,700 - $78,400

Current stockholders' equity= $87,900

Fourth step is to calculate Projected shareholders equity

Projected shareholders equity = $87,900 + (1.05 × $185,000 × 0.058 × (1 - 0.25))

Projected shareholders equity = $96,349.88

Now let calculate the external financing need

External financing need = $213,150 - $38,535 - $78,400 - $96,349.88

External financing need= -$134.88

Therefore External financing need will be -$134.88