Here are the abbreviated financial statements for Planners Peanuts Sales Cost IN

Question

Here are the abbreviated financial statements for Planners Peanuts Sales Cost INCOME STATEMENT, 2012 $6,500 5,100 Net income $ 1,400 BALANCE SHEET, YEAR-END 2011 2012 2011 2012 Assets $10,500 $11,000 Debt 633 $ 1,000 10,000 Equity 9,867 11,000 Total $10,500 $11,000 Total $10,500 $ If the dividend payout ratio is fixed at 50%, calculate the required total external financing for growth rates in 2013 of 15%, 20%, and 25%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) External Financing 15% 20% 25%

Explanation / Answer

Total Assets in 2012 = $11,000

Net income in 2012 = $1,400.

Payout ratio = 50%

Retention ratio = 50%

Value of retained earnings = $1,400 × 50%

= $700.

Now External financing is calculated below:

a.

Growth rate = 15%.

External finance needed = (Growth rate × Total Assets) - Addition to retained earnings

= (15% × $11,000) - $700

= $1,650 - $700

= $950

External Finance needed in 2013 if growth rate is 15% is $950.

b.

Growth rate = 20%.

External finance needed = (Growth rate × Total Assets) - Addition to retained earnings

= (20% × $11,000) - $700

= $2,200 - $700

= $1,500

External Finance needed in 2013 if growth rate is 20% is $1,500.

c.

Growth rate = 25%.

External finance needed = (Growth rate × Total Assets) - Addition to retained earnings

= (25% × $11,000) - $700

= $2,750 - $700

= $2,050

External Finance needed in 2013 if growth rate is 20% is $2,050.

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