Question

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

Income Statement Balance Sheet
Sales $5,700 Current assets $ 3,900
Current liabilities $ 2,200 Costs 4,200
Fixed assets 8,100 Long-term debt 3,750
Taxable income $1,500 Equity 6,050
Taxes (34%) 510 Total $12,000 Total $12,000
Net income $ 990
Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent. What is the external financing needed?

Answer 1

Expected sales = current sales x (1 + projected sale next year increase)

= 5,700 x (1 + 15%)

= $ 6555

Expected cost = current cost x (1 + projected sale next year increase)

= 4200 x (1 + 15%)

= $ 4830

Taxable income = 1500 x ( 1 + 15%)

= $ 1725

Taxes (34%) = 510 x (1+15%)

= $ 586.5

Net income = sales - cost - taxes

= 6555 - 4830 - 586.5

= $ 1138.5

Calculation of total asset :

Current asset = 3,900 x 1.15

= $ 4485

Fixed asset = 8100 x 1.15

= $ 9315

Total asset = 4485 + 9315

= $ 13800

Calculation of total liabilities

Current liabilities = 2200 x 1.15

= $ 2530

Long term debt = $ 3,750

Equity = $ 6050 + (1138.5 x 0.50 )

= $ 7189

Total liabilities = $ 2530 + $ 3,750 + $ 7189

= $ 13, 469

Therefore the external financial needed is = $ 13800 - $ 13, 469

= $ 331