Question

Tobin Supplies Company expects sales next year to be $380,000. Inventory and accounts receivable will increase $100,000 to accommodate this sales level. The company has a steady profit margin of 25 percent with a 35 percent dividend payout. How much external financing will Tobin Supplies Company have to seek

Answer 1

$38,250

Step-by-step explanation:

Calculation for how much external financing will Tobin Supplies Company have to seek.

First step

Net Income $95,000

(Sales $380,000×25%)

Less:Dividends ($33,250)

(35%×$95,000)

Increase in retained earnings $61,750

($95,000-$33,350)

Second step

Increase in assets$100,000

Less Increase in retained earnings($61,750)

External funds needed $38,250

Therefore the amount of external financing that Tobin Supplies Company have to seek will be $38,250