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The Income statement and Balance Sheet for Day Light Robbery Inc. is given as follows: INCOME...

The Income statement and Balance Sheet for Day Light Robbery Inc. is given as follows: INCOME STATEMENT Sales $5,650,000 COGS 3,865,000 Depreciations 650,100 EBIT 1,134,900 Interest Expense 325,000 Taxable Income 809,900 Taxes 161,980 Net Income 647,920 Dividends $ 259,168 BALANCE SHEET ASSETS LIABILITIES & OWNERS EQUITY Current Assets 1,251,000 Current Liabilities 975,000 Long Term Debt 900,000 Net Fixed Asset 8,734,000 Common Stock 6,975,000 Accumulated Retained Earnings 1,135,000 Total Owner’s Equity 8,110,000 Total Assets 9,985,000 Total Liabilities & Equity 9,985,000 The firm expects its Sales to grow 20% next year Calculate the external funds needed (EFN)

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Expert Solution

Calculate the external funds needed (EFN)

External funds required = [(Assets / Sales) x Δ sales] - [(Spontaneous liabilities / Sales) x Δ sales] - [(Projected sales x Profit margin) x (1-Dividend payout ratio)]

=(9,985,000/5,650,000)*5,650,000*20%-(975,000/5,650,000)*5,650,000*20%-5,650,000*120%*11.47%*(1-40%)

= 1996999.99- 194999.99- 466599.6

External Funds Needed (EFN) =$ 1335400

Workings:
Net profit margin = 647920/5650000 = 11.47%
Dividend payout ratio = 259168/647920 = 40.00%
INCOME STATEMENT Current Year Basis for projections Next Projections before raising AFN
Sales $ 5,650,000 +20% $     6780000
Less: Costs $ 3,865,000 +20% $     4638000
Less: Depriciation $ 650,100 +20 $ 780120
Less: Interest $ 325,000 +20 $ 390000
Taxable income $ 809,900 +20 $ 971880
Taxes at 20% $ 161,980 +20 $ 194376
Net income $ 647,920 +20 $ 777504
Dividends (40%) $ 259,168 $ 311002
Addition to retained earnings (Net Income - Dividend) $ 388752 $ 466502
BALANCE SHEET
Current assets $ 1,251,000 +20 $ 1501200
Fixed assets-Net $ 8,734,000 +20 $ 10480800
Total assets $ 9,985,000 $ 11982000
Current Liabilities $ 975,000 +20 $ 1170000
Long term debt $ 900,000 $ 900000
Common stock $ 6,975,000 $ 6,975,000
Retained earnings $ 1,135,000 +466500 $ 1601500
Total Liabilities $ 9,985,000 $ 10646500
EFN (TA-TL) $ 1335400

jeff jeffy answered 2 years ago
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