Question 2 The most recent financial statements for Summer Tyme, Inc., are shown

Question

Question 2

The most recent financial statements for Summer Tyme, Inc., are shown here:

2,300  

$9,700  

$9,700  

$966  

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 60 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 30 percent.

What is the external financing needed? (Do not round your intermediate calculations.)

rev: 09_17_2012

$2,407.68

$2,084.68

$2,184.68

$1,071

$2,134.68

Question 3

3,102    

$17,226  

$17,226  

$1,055    

rev: 09_17_2012

3.95%

4.05%

2.38%

3.85%

9.93%

The most recent financial statements for Summer Tyme, Inc., are shown here:

Explanation / Answer

1.

Since assets are proportional to sales;total assets would be=(9700*1.3)=$12610

Current liabilities would be=(910*1.3)=$1183

Hence total liabilities=Current liabilities+Long term liabilities

=(1183+3570)=$4753

Total equity would be=Equity+Addition to retained earnings

=(5220+502.32)=$5722.32

Total assets=Total liabilities+Total equity

Hence external financing needed=(12610-(4753+5722.32)

which is equal to

=$2134.68

2.

ROA=Net income/Total assets

=(1055/17226)=6.124463%

Retention ratio=1-dividend payout ratio

=(1-0.38)=0.62

Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]

(0.62*0.06124463)/[1- (0.62*0.06124463)]

which is equal to

=3.95%(Approx).

Sales(3700*1.3) 4810 Costs(2300*1.3) 2990 Taxable income 1820 Taxes@31% 564.2 Net income $1255.80 Less:dividends(1255.8*60%) 753.48 Addition to retained earnings $502.32

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