The most recent financial statements for GPS, Inc., are shown here: Income Statement Sales $23,852 Costs...

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

Income Statement
Sales	$23,852
Costs	$11,902
Taxable Income	?
Taxes (40%)	?
Net Income	?

Balance Sheet
Assets	$56,455	Debt	$18,576
		Equity	?

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,980 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $29,412.

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 rounded to the nearest whole dollar amount. For example, $1,200.456 should be entered as 1200.)

Solutions

Expert Solution

Sales	23852
Costs	11902
Taxable income	$11950
Taxes(40%)(11950*40%)	4780
Net income	$7170

Total assets=Total liabilities+Total equity

Hence equity=(56,455-18,576)=$37879

Growth rate in sales=(29412-23852)/23852

=23.3104142%(Approx)

Dividend payout ratio=Dividend payout/Net income

=1980/7170

=0.276150628

Sales	29,412
Costs(11902*1.233104142)	14676.41
Taxable income	14735.59
Taxes(14735.59*40%)	5894.24
Net income	8841.35
Less:Dividends(8841.35*0.276150628)	2441.54
Addition to retained earnings	6399.81

Total assets would be=56,455*1.233104142

=$69614.89

Total equity would be=37879+Addition to retained earnings

=37879+6399.81=$44278.81

Total assets=Total liabilities+Total equity

Hence external financing needed=69614.89-44278.81-18576

=6760(Approx)

jeff jeffy answered 2 years ago

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