The most recent financial statements for GPS, Inc., are shown here: Income State
ID: 2808720 • Letter: T
Question
The most recent financial statements for GPS, Inc., are shown here: Income Statement Balance Sheet Sales $22,300 Assets $108,000 Debt $38,600 Costs 16,700 Equity 69,400 Taxable income $5,600 Total $108,000 Total $108,000 Taxes (35%) 1,960 Net income $3,640 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,660 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $29,200. Required: What is the external financing needed?
Explanation / Answer
Dividend payout ratio=Dividend/Net income
=(1660/3640)=0.456043956
Growth rate in sales=(29200-22300)/22300=0.30941704
Total assets would be=$108000*1.30941704=$141417.0403
Total equity=$69400+Addition to retained earnings
=(69400+$2592.645742)=$71992.64574
Total assets=Total equity+Total liabilities
Hence external financing needed=$141417.0403-$71992.64574-$38600
$30824.39(Approx).
Sales 29200 Costs(16700*1.30941704) $21867.26457 Taxable income $7332.73543 Taxes@35% $2566.457401 Net income $4766.27803 Less:dividends($4766.27803*0.456043956) $2173.632288 Addition to retained earnings $2592.645742