Calculate the external financing needed given the following financial statements

Question

Calculate the external financing needed given the following financial statements. Assume that all costs, all assets, and accounts payable change proportionally with sales. Sales are projected to grow by 25%. Also assume that the company is operating at full capacity.

Current Statement of Comprehensive Income Sales $50,000 CoGS 30,000 EBDIT 20,000 Depreciation 10,000 EBIT 10,000 Interest expense 5,000 Taxable income 5,000 Taxes (35%) 1,750 Net Income 3,250 Dividends 975 Addition to RE 2,275

Current Statement of Financial Position Cash $8,000 Accounts receivable 22,000 Inventory 30,000 Total current assets 60,000 Fixed assets 90,000 Total assets $150,000 Accounts payable $15,000 Notes payable 5,000 Total current liabilities 20,000 Long-term debt 40,000 Common stock 40,000 Retained earnings 50,000 Total owners’ equity 90,000 Total Liabilities and OE $150,000

Select one answer

A- $33,750

B- $34,656.25

C- $30,906.25

D- $37,500

E- $22,500

Explanation / Answer

External Financing needed

= Total projected long term debt - Existing long term debt

= $70906.25 - $40000

= $30906.25

Correct Option is C)$30906.25

Projected Income Statement Particulars Amount ($) Sales 62500 COGS 37500 EBDIT 25000 Depreciation 12500 EBIT 12500 Interest Expense 6250 Taxable Income 6250 Taxes (35%) 2187.5 Net Income 4062.5 Dividends 1218.75 Addition to RE 2843.75 Projected Balance Sheet Liabilities: Accounts payable 18750 Notes payable 5000 Total Current Liabilities 23750 Long term debt (Balancing figure) 70906.25 Common Stock 40000 Retained Earnings 52843.75 Total Owners' Equity 92843.75 Total Liabilities and OE 187500 Assets: Current Assets: Cash 10000 Accounts Receivable 27500 Inventory 37500 Total Current Assets 75000 Fixed Assets 112500 Total Assets 187500

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