Question

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

Income Statement
Sales	$6,813
Costs	$5,829
Taxable Income	?
Taxes (34%)	?
Net Income	?

Balance Sheet
Current Asset	$3,578	Current Liabilities	$2,047
Fixed Asset	$9,726	Long Term Debt	$3,565
		Equity	?

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 21 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 15 percent.

What is the external financing needed? (round 2 decimal places)

Answer 1

- Preparing the Income Statement of Recent year as well as for next year:-

Particular	Recent Year(amt in $)	Change for next year	Next Year(amt in $)
Sales	6813	Increase by 15%	7834.95
Less; Costs	(5829)	Increase by 15%	(6703.35)
Taxable Income	984		1131.6
Less; taxes @34%	(334.56)		(384.74)
Net income	649.44		746.86

So, net income of next year = $746.86

Calculating external financing needed(EFN):-

EFN = (Total assets of previous year)*(% increase in Sales) - (Spontaneous Liabilities of previous year)*(% increase in Sales) - (Net income of next year)*(1-Dividend Payout ratio)

Total assets of previous year= $3578 + $9726 = $13,304

% increase in Sales =15%

Spontaneous Liabilities of previous year =Current liabilities = $2047

Dividend Payout ratio = 21%

EFN = ($13,304)(15%) - ($2047)(15%) - ($746.86)*(1-0.21)

EFN = $1995.6 - $307.05 - $590.02

EFN = $1098.53

So, the external financing needed is $1098.53

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