Saved yEx03 for Chapter Four (Part 2) The most recent financial statements for A

Question

Saved yEx03 for Chapter Four (Part 2) The most recent financial statements for Assouad, Inc, are shown here: Balance Sheet Current s 4,050 liabilities 2,625 4,190 Sales Sles $9300 Current liabilities 6.550 Fixed assets 9,300 Long-term 9,300 debt Costs Taxable $2750 income Equity 6.535 Taxes (22%) 605 Total $13,350 Total $13.350 Net income S 2145 Assets, costs, and current liabilities are proportional to sales Long-term debt and equity are not. The company maintains a constant 44 percent dividend payout ratio. As with every other firm in its industry, next years sales are projected to increase by exactly 17 percent What is the external tnencing needed? (Do not round intermediete calculations ond round your answer to 2 decimal places. .g. 32.16. 10, 5111 Next> TOSHIBA 4 5 678 9 0

Explanation / Answer

Assound., Inc

Sales = 9300 $, Net Income = 2145 $, Dividend pay out Ratio = 44%, Total Assets = 13,350$ (Current assets = 4050 $, Fixed assets = 9300$ ), Sales are wanted to increase Exactly by 17% by next year ,Accordingly Expected sales = 9300*117% = 10,881$,

Assets ,costs,current liabilities are proportion to sales,

Assets values in current year = 13,350$

Assets values in Next year 13,350$ *10881$ / 9300$ =15,620 $,

Cost in current year = 6,550$,

Cost in Next year = 6,550$ * 10,881$ / 9300$ = 7,664 $,

current liabilities in current year = 2,625 $,

current liabilities in Next year = 2,625 $ * 10,881 $ / $ 9300 = 3071.25$,

Profit margin = Sales - cost = 10,881 - 7664 = 3217 $

Net Income = 3217 *( 1 -22%) = 2509.26 $

Dividend pay out Ratio = Dividend / Net Income = 44% = Dividend / 2145 $ = 943.8 $

As there is no change in the dividend payout ratio

Dividend pay out Ratio = Dividend / Net Income = 44% = Dividend / 2509.26 $

Dividend = 1104 $, Increase In dividends = 1104$ - 943.8$ = 160.2 $,

Increase In Total Assets = 15,620 $, - 13,350$ = 2270 $,

Increase In Current liabilities = 3071.25$ -  2,625 $ = 446.25 $,

Increase In Assets = 15,620 $, - 13,350$ = 2270$

external financing would be = 2270$ -  446.25 $ -  160.2 $, = 1663.55$

Bello Co.,

Sales = 19,900$,Total Assets = 42,500$, Costs =13,600$

Dividend pay out Ratio = Dividend / Net Income = 40% = Dividend / 4851 = 1940.4$ ,i.e., dividend = 1940.4$, Total profit = dividend +retention amount = 1940.4 +1940.4*60%/40%* = 4851$ after tax

Retention ratio = 1- Dividend pay out Ratio =( 1- 40% )= 0.6 i.e 60%,

return on assets = Profit after tax / Total assets = 4851/ 42500 = 11.414%

Internal Growth rate = (1- Dividend pay out Ratio ) * return on assets = (1- 40%)*11.414% = 6.85%,

Sustainable growth rate:

Sustainable growth rate = Earnings retention ratio * return on equity or

Earnings after dividend / shareholders equity

Dividend pay out Ratio = Dividend / Net Income =55% = Dividend / 4914 = 2702.7$ ,

i.e., dividend = 2702.7 $,Earnigs after tax = 4914,Earnigs after dividend = 4914 -2702.7 = 2211.3 $,

  shareholders equity = 27,430$,

arnings after dividend / shareholders equity = 2211.3 / 27430 *100 = 8.062%

Sustainable growth rate = 8.062%

alexander co.,

Dividend pay out Ratio = 35% , and Constant debt equity ratio

debt equity ratio = Debt / equity = 37,870 $ / 50140 =0.755 $

Present sales = 45,350$, Retion ratio = 1-35% =.75 ,Profit =45350*0.75 =34012.5$,

Profit = 34012.5 $,* Dividend amount =7020*35/100 = 2457 $

total profit = 2457+ 34012.5 = 36470 $,

Profit before tax = 36470* 100/78 = 46,756$

Sales = 46756 *100/75 = 62341 $

there fore change in sales in Dollars = 62341$ -45,350$ = 16,991 $.

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