Please help and show all work The most recent financial statements for Summer Ty

Question

Please help and show all work

The most recent financial statements for Summer Tyme, Inc., are shown here: Income Statement Balance Sheet Sales $3,500 Current assets $3,600 Current liabilities $930 Costs 2,100 Fixed assets 5,600 Long-term debt 3,510 Taxable income $1,400 Equity 4,760 Taxes (33%) 462 Total $9,200 Total $9,200 Net income $938

Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not.

The company maintains a constant 50 percent dividend payout ratio.

As with every other firm in its industry, next year's sales are projected to increase by exactly 25 percent.

Required: What is the external financing needed? (Do not round your intermediate calculations.)

Multiple choice

$1,531.25

$1,431.25

$1,713.75

$1,481.25

$877.5

Explanation / Answer

what is the external financing needed :

increase in assets - increase in liabilities - increase in retained earnings

assets= fixed assets + current assets = $9200

increase in assets = $9200*0.25 = $2300

increase in liabilities = 930*0.25 = $232.5

increase in retained earnings = sales of next year * dividend payout *profit margin

sales of next year =$3500*1.25 = $4,375

net proft margin = net income/sales =938/3500 = 0.2680

so, increase in retained earnings is = 4375 *0.2680 *0.50= $586.25

so, external financing needed is =2300 - 232.5 - 586.25= $1481.25

so, the correct option is d.

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