The most recent financial statements for Reply, Inc., are shown here: Income Sta

Question

The most recent financial statements for Reply, Inc., are shown here: Income Statement Balance Sheet Sales $ 23,400 Assets $ 52,500 Debt $ 20,100 Costs 15,200 Equity 32,400 Taxable income $ 8,200 Total $ 52,500 Total $ 52,500 Taxes (40%) 3,280 Net income $ 4,920 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,700 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $26,910. What is the external financing needed? (Do not round intermediate calculations.) External financing needed $

Explanation / Answer

In the solution = net income - dividend is plow back meaning the amount will get added to equity

Asset and cost figure is derived from sales based on the previous year percentage

Asset - the new equity will give new debt figure

The new debt is $ 24,272 additonal finance needed is  =$ 24,272-$20,100= $4,172

External financing needed is new debt- old debt

ratio/%age ratio/%age sales    23,400.00 assets    52,500.00               2.24 costs    15,200.00 64.96% Debt    20,100.00 taxable income      8,200.00 equity    32,400.00 tax @40%      3,280.00 Net income      4,920.00 Dividend      1,700.00 Dividend payout ratio 34.55% assets(E10*C10)    60,375.00 2.24 sales    26,910.00 Debt( B10-B12)    24,272.00 costs( E10* F11)    17,480.00 64.96% equity( B5+E14-E15)    36,103.00 taxable income      9,430.00 tax @40%      3,772.00 Net income      5,658.00 Dividend(E14*E16)      1,955.00 Dividend payout ratio 34.55%

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