The most recent financial statements for Martin, Inc., are shown here Income Sta
ID: 2806334 • Letter: T
Question
The most recent financial statements for Martin, Inc., are shown here Income Statement Sales Costs Taxable income Taxes ( 3 5 % ) $16,000 9.600 $ 6,400 (2,240) Net income $ 4,160 Balance Sheet $44,800 Debt $22,000 22,800 $44,800 Assets Equity Total $44,800 Total Assets and costs are proportional to sales. Debt and equity are not. A dividend of $970 was paid, and Martin wishes to maintain a constant payout ratio. Next year's sales are projected to be $19,680. What is the external financing needed? (Do not round intermediate calculations. Round your answer to 2 decimal places.) EFNExplanation / Answer
Growth rate=(19680-16000)/16000=23%
Dividend payout ratio=Dividends/Net income
=(970/4160)=0.23317(Approx)
Total assets would be=(44800*1.23)=$55104
Total assets=Debt+equity
55104=22000+(22800+3923.7)
Hence external financing needed=55104-[22000+(22800+3923.7)]
which is equal to
=$6380.30
Sales 19680 Costs(9600*1.23) (11808) Taxable income 7872 Taxes@35% (2755.2) Net income 5116.8 Less:Dividends(0.23317*5116.8) 1193.1 Addition to retained earnings 3923.70