Question

In: Finance

Problem 4-4 EFN [LO2] The most recent financial statements for Cardinal, Inc., are shown here: Income...

Problem 4-4 EFN [LO2]

The most recent financial statements for Cardinal, Inc., are shown here:
Income Statement Balance Sheet
  Sales $ 31,000   Assets $ 73,200   Debt $ 36,700
  Costs 18,400   Equity 36,500
  Taxable income $ 12,600     Total $ 73,200     Total $ 73,200
  Taxes (22%) 2,772
    Net income $ 9,828

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $3,700 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $35,340.

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

Solutions

Expert Solution

Next year's projected sales = $35,340

Current year sales = $31,000

% of increase in sales next year = (Next year sales - Current year sales / Current year sales

% of increase in sales next year = ($35,340 - $31,000) / $31,000

% of increase in sales next year = 0.14 or 14%

Projected income statement for next year :

Sales $35,340
Less : Cost ($18,400 + 14%) $20,976
Taxable income $14,364
Tax @ 22% ($14,364 * 22%) $3,160.08
Net income $11,203.92
Less : Dividend (Note 1) $4,218.28
Transfer to reserve $6,985.64

Note 1 : Calculation of dividend for next year

Current year dividend payout ratio is to be maintained for next year projection also.

Dividend payout ratio = Current year dividend / Net income

Dividend payout ratio = $3,700 / $9,828

Dividend payout ratio = 0.3765 or 37.65%

Now,

Next year projected dividend = Projected Net income * Dividend payout ratio

Next year projected dividend = $11,203.92 * 37.65%

Next year projected dividend = $4,218.28

Projected Balance Sheet

Assets Amount Liabilities & equity Amount
Assets ($73,200 + 14%) $83,448 Debt (no change) $36,700
Equity $36,500
Reserves (transfer from income statement) $6,985.64
Total $83,448 $80,185.64

External financing needed = Total projected assets - Total projected liabilities & equity

External financing needed = $83,448 - $80,185.64

External financing needed = $3,262.36

Note : In projected balancesheet, balance income after dividend payment transferred to reserve separately on balancesheet. In current year, it is assumed that balance income after dividend is considered in equity in balancesheet.

jeff jeffy answered 4 months ago
Next > < Previous

Related Solutions

P4-4 EFN [LO2] The most recent financial statements for GPS, Inc., are shown here:   Income Statement...
P4-4 EFN [LO2] The most recent financial statements for GPS, Inc., are shown here:   Income Statement Balance Sheet   Sales $23,800     Assets $114,000     Debt $33,600     Costs 16,600     Equity 80,400     Taxable income $7,200       Total $114,000       Total $114,000     Taxes (30%) 2,160       Net income $5,040   Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,560 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $28,000. Required: What is...
Problem 4-24 Calculating EFN [LO2] The most recent financial statements for Crosby, Inc., follow. Sales for...
Problem 4-24 Calculating EFN [LO2] The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. CROSBY, INC. 2017 Income Statement Sales $ 763,000 Costs 598,000 Other expenses 34,000 Earnings before interest and taxes $ 131,000 Interest paid 30,000 Taxable income...
Problem 4-24 Calculating EFN [LO2] The most recent financial statements for Crosby, Inc., follow. Sales for...
Problem 4-24 Calculating EFN [LO2] The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. CROSBY, INC. 2017 Income Statement   Sales $ 751,000   Costs 586,000   Other expenses 22,000   Earnings before interest and taxes $ 143,000   Interest paid 18,000   Taxable income...
The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet Sales...
The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet Sales $ 25,400 Assets $ 61,000 Debt $ 26,900 Costs 17,300 Equity 34,100 Taxable income $ 8,100 Total $ 61,000 Total $ 61,000 Taxes (21%) 1,701 Net income $ 6,399 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,100 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be...
The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet   Sales...
The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet   Sales $ 31,800   Assets $ 74,800   Debt $ 38,100   Costs 18,500   Equity 36,700   Taxable income $ 13,300     Total $ 74,800     Total $ 74,800   Taxes (24%) 3,192     Net income $ 10,108 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $3,900 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be...
The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes):   Income...
The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes):   Income Statement Balance Sheet   Sales $4,200     Assets $15,300     Debt $11,000     Costs 3,390     Equity 4,300       Net income $810       Total $15,300       Total $15,300   Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $5,976. Required: What is the external financing needed? (Do not round your intermediate calculations.)
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income...
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income Statement   Sales $5,683   Costs $4,258 Balance Sheet   Assets $16,387   Debt $8,882 Equity ? Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $7,885. What is the external financing needed?
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income...
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income Statement   Sales $7235   Costs $4280 Balance Sheet   Assets $16063   Debt $8972 Equity ? Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $7709. What is the external financing needed? (Negative amount should be indicated by a minus sign.) (Omit the "$" sign and commas in your response. Enter your answer...
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income...
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes): Income Statement Sales $7468 Costs $4028 Balance Sheet Assets $17637 Debt $6122 Equity ? Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $8681. What is the external financing needed?
most recent financial statements for kerch inc are shown here. the Assuming no income taxes. income...
most recent financial statements for kerch inc are shown here. the Assuming no income taxes. income statement Balance Sheet sales $8,300 assets $23,200 Debt $9,00 costs 5,400 _______ Equity 14200 net 2810 Total $23,200 Total $23,20 income Assets and cost are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $9545 What is the external financing needed?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT