The most recent financial statements for GPS, Inc., are shown here: Income Statement Balance Sheet Sales...

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

Income Statement		Balance Sheet
Sales	$22,900	Assets	$113,000	Debt	$31,600
Costs	16,600			Equity	81,400
Taxable income	$6,300	Total	$113,000	Total	$113,000
Taxes (30%)	1,890
Net income	$4,410

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,500 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $29,200.

Required:

What is the external financing needed?

Multiple Choice

$216,281
$22,708
$27,377
$21,541
$23,876

Solutions

Expert Solution

Calculation of Net Income when sale is $ 29200

Income Statement
Particular	Working	Amount
Sales		29200.00
Cost	(16600/22900)*29200	21166.81

Taxable Income		8033.19
Tax @ 30%		2410

Net Income		5623.19

Dividend= (1500/4410)*5623.19 = $ 1912.65

Retained Earnings= Net Income - Dividend

= 5623.19-1912.65

= $ 3710.54

BALANCE SHEET
Assets	Amount	Liabilities & Equity	Amount

Assets (113000/22900)*29200	144087.34	Debt	31600.00
		Equity (81400+3710.54)	85110.54
		External Financing (Balance Figure)	27376.80

Total	144087.34	Total	144087.34

Therefore external financing required is $ 27,377

jeff jeffy answered 2 years ago

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