The most recent financial statements for GPS, Inc., are shown here: Assets and c

Question

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

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1638 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $28004.

What is the external financing needed? (Negative amount should be indicated by a minus sign.)

(Omit the "$" sign and commas in your response. Enter your answer rounded to 2 decimal places. For example, $1,200.456 should be entered as 1200.46.)

Income Statement Sales $24176 Costs $10258 Taxable Income ? Taxes (40%) ? Net Income ?

Explanation / Answer

Current net income=(24176-10258)(1-0.4)

=$8350.8

Hence dividend payout ratio=Dividend/Net income

=(1638/$8350.8)=0.196148872

Growth rate in sales=(28004-24176)/24176=0.158338848

Total assets would be=$58466*1.158338848=$67723.43909

Total assets=debt+equity

Beginning equity=(58466-20485)=$37981

Ending equity=Beginning equity+Addition to retained earnings

=$37981+$7775.697025

=$45756.69703

Total assets=debt+equity

Hence external financing needed=$67723.43909-$45756.69703-$20485

=$1481.74(Approx).

Sales 28004 Costs(10258*1.158338848) $11882.2399 Taxable income $16121.7601 Taxes@40% $6448.70404 Net income $9673.05606 Less:dividends($9673.05606*0.196148872) $1897.359035 Addition to retained earnings $7775.697025

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