Question

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

                       

Income Statement			Balance Sheet
Sales	4,800		Current assets	6,084	Current Liabilities	1,244
Costs	3,840		Fixed assets	5,183	Long-term debt	2,487
Taxable income	960				Equity	7,036
Taxes (35%)	336				Retained earnings	500
Net income	624		Total	11,267	Total	11,267

The company is running at full capacity and the company maintains a constant 50 percent dividend payout ratio. Like every other firm in its industry, next year's sales are projected to increase by exactly 12 percent.

What is the external financing needed (EFN) and plug variable options to adjust this EFN?

Answer 1

It has been assumed that the Assets and Current liabilities are increasing in the same rate as sale is which is 12%
And the Long-term Debt has not changed.
Sales	$                    5,376
Cost	$                    4,800
Taxable Income	$                       576
Less:Income taxes @35%	$                       202
Net Income	$                       374
Less:Dividend @50%	$                       187
Net Income retained	$                       187
Current Assets($6,084*1.12)	$                    6,814	Current Liabilities	$                        1,393
		Long-term Debt	$                        2,487
		Equity	$                        7,036
Fixed Assets Assets($5,183*1.12)	$                    5,805	Retained Earnings	$                           687
	$                  12,619		$                      11,603
So EFN =Total Assets - Total Liabilities and equity
EFN =$12,619 - $11,603 =$1,016
So the Revised Balance sheet will look as follows
Current Assets	$                    6,814	Current Liabilities	$                        1,393
		Long-term Debt	$                        2,487
		Equity(7036+1016)	$                        8,052
Fixed Assets Assets	$                    5,805	Retained Earnings	$                           687
	$                  12,619		$                      12,619