Question

The most recent financial statements for Xporter, Inc., are shown here: Income Statement Sales $7062 Costs $5789 Taxable Income ? Taxes (34%) ? Net Income ? Balance Sheet Current Asset $3750 Current Liabilities $2453 Fixed Asset $9635 Long Term Debt $3626 Equity ? Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant 16 percent dividend payout ratio. As with every other firm in its industry, next year’s sales are projected to increase by exactly 13 percent. What is the external financing needed?

Answer 1

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Income statement
sales	7062
Cost	5789
Gross profit	1273
Tax 34%	432.82
Net income	840.18

Balance sheet
Asset		Liability
Current asset	3750	Current liability	2,453.000
Fixed asset	9635	Long term debt	3,626.000
		Equity	7,306.000
Total	13385	Total	$                        13,385.000

Now we need to make pro farma of income statement , Sale and cost will be increased by 13%

Income statement		Pro farma
sales	7062	7980.06
Cost	5789	6541.57
Gross profit	1273	1438.49
Tax 34%	432.82	489.09
Net income	840.18	949.40
Dividend 16%		151.90
Retained earning		797.50

Total equity = Equity + retained earning

                        = 7306 + 797.50

                         = 8103.5

Now we need to prepare balance sheet

Balance sheet
Asset		Liability
Current asset	4237.5	Current liability	2,771.89
Fixed asset	10887.55	Long term debt	3,626.00
		Equity	8,103.50
Total	15125.05	Total	14,501.39

Pls note the asset side is not equal to liability side, because the company need additional external financing the value will be

External financing = asset – liability

                                    = 15125.05 – 14501.39 = 623.66

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Hope that helps.

Feel free to comment if you need further assistance J