I am so lost on this one, please help... Book is Corporate Finance Ross Westerfi

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Question

I am so lost on this one, please help...

Book is Corporate Finance Ross Westerfield Jaffe 9ed

Chapter 3 questions and problems number 4.

Question: The most recent financial statements for Martin, Inc. are shown here:

Income Statement Balance Sheet

Sales $25,800

Assets $113,000

Debt $20,500

Costs $16,500

Equity $92,500

Taxable income $9,300

Total $113,000

Taxes (34%) $3,162

Net Income $6,138

Assets and costs are proportionional to sales. Debt and equity are not. A dividend of $1,841.40 was paid, and Martin wishes to maintain a constant payout ratio. Next year's sales are projected to be $30,960. What external financing is needed.

I need help!!!

Income Statement Balance Sheet

Sales $25,800

Assets $113,000

Debt $20,500

Costs $16,500

Equity $92,500

Taxable income $9,300

Total $113,000

Taxes (34%) $3,162

Net Income $6,138

Explanation / Answer

An increase of sales to $30,960 is an increase of:

Sales increase = ($30,960 - $25,800) / $25,800

Sales increase = 0.20 or 20%

Assuming costs and assets increase proportionally, the pro-forma financial statements will look like this:

Pro-forma Income Statement

Pro-forma Balance Sheet

Sales $30,960.00

Assets $135,600 Debt $ 20,500

Costs 19,800.00

Equity 111,000

EBIT 11,160.00

Total $135,600 Total $131,500

Taxes (34%) 3,794.40

Net Income $7,365.60

The payout ratio is constant, so the dividends pais this year is the payout ratio from last year times net income, or:

Dividends = ($1,841.40 / $6,138)($7,365.60)

Dividends = $2,209.68

Addition to Retained Earnings = $7,365.60 - $2,209.68 = $5,155.92

New Equity balance = $92,500 + $5,155.92 = $97,655.92

So, EFN = Total Assets - Total Liabilities and Equity

EFN = $135,600 - $131,500 = $4,100