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

Question

The most recent financial statements for Assouad, Inc., are shown here: Balance Sheet Income Statement Sales Costs liabilities $ 3,075 4,610 $10,500 Current $4.950 Current 7450 Fixed assets 9,900 Long-term Taxable income $3.050 671 Net income $2,379 Equity 7165 Taxes (22%) Total $14,850 Total $14,850 Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. As with every other firm in its industry. next year's sales are projected to increase by exactly 14 percent. What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) External financing needed

Explanation / Answer

We have

External Financing Needed = (A0/S0*(S1-S0)) - (L0/S0*(S1-S0)) - (PM*S1*b)

where

Ao - Assets (at time 0) which vary directly with Sales = 14850

Lo - Liabilities (at time 0) which vary directly with Sales=3075

So - Current Sales =10500

S1 - Projected Sales = 10500*1.14 = 11970

b - Retention ratio = 1-payout ratio = 1-.45 = .55

PM - Profit Margin = Net income/Sales = 2379/10500

External Financing Needed = (14850/10500*(11970-10500)) - (3075/10500*(11970-10500)) - (2379/10500*11970*.55)

= 2079-430.5-1491.633

= 156.87

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