The most recent financial statements for Williamson, Inc., are shown here (assum

Question

The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Sales $ 7,300 Assets $ 20,500 Debt $ 8,000 Costs 4,880 Equity 12,500 Net income $ 2,420 Total $ 20,500 Total $ 20,500 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $8,541. What is the external financing needed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) External financing needed $

Explanation / Answer

Sales growth rate = new sale/ old sales -1

                                    = 8541/7300 -1

                                    = 17%

That means costs will increase by17%.

New costs = 4880 x (1+0.17)

                     =5,709.60

Net income = sales – cost

                       = 8541-5709.60

                       = 2831.40

Change in assets = current total assets x % sales growth rate

                                   = 20,500 x17%

                                = 3,485

External Financing needed = change in assets – addition to retained earnings

                                                     = 3,485 – (2831.40 -0)

                                                     = $653.60

So external financing needed would be 653.60.

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