Question

In: Finance

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

The most recent financial statements for Summer Tyme, Inc., are shown here:
  Income Statement Balance Sheet
  Sales $3,800     Current assets $5,200     Current liabilities $790  
  Costs

2,400  

   Fixed assets 5,700     Long-term debt 3,510  
  Taxable income $1,400     Equity 6,600  
  Taxes (35%) 490       Total

$10,900  

     Total

$10,900  
    Net income

$910  

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 60 percent dividend payout ratio. As with every other firm in its industry, next year's sales are projected to increase by exactly 30 percent.
Required:

What is the external financing needed? (Do not round your intermediate calculations.)


Multiple Choice

  • $2,796.8

  • $2,509.8

  • $2,609.8

  • $2,559.8

  • $1,053

Solutions

Expert Solution

Next year

Sales = 3800 * (1+30%)

= 4940

costs = 2400 * (1+30%)

= 3120

taxable income = 4940 - 3120

= 1820

taxes (35%) = 1820 * 0.35

= 637

Net income = 1820 - 637

= 1183

current assets = 5200 * (1+30%)

= 6760

fixed assets = 5700 * (1+30%)

= 7410

total assets = 6760 + 7410

= 14170

current liabilities = 790 * (1+30%)

= 1027

long term debt = 3510

addition to retained earnings = 0.4 * 1183

= 473.2

equity = 6600 + 473.2 = 7073.2

total = 1027 + 3510 + 7073.2

= 11610.2

external financing needed = 14170 - 11610.2

= 2559.8

jeff jeffy answered 2 years ago
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