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

Question

The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Sales Costs Balance Sheet $26,600 Assets $64,400 Debt $29,000 Equity 35,400 17,850 Taxable $8,750 Tota $64,400 Tot $64,400 Income Taxes (24%) 2100 Income$ 6,650 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2,600 was pald, and the company wishes to malntain a constant payout ratlo. Next years sales are projected to be $30,324. What is the external financing needed? (Do not round Intermedlete calculatlons.) External financing needed

Explanation / Answer

Growth rate in sales=(30324-26600)/26600=14%

Dividend payout ratio=Dividend/Net income

=(2600/6650)=0.390977443

Total assets would be=$64400*1.14=$73416

Total equity=$35400+Addition to retained earnings

=(35400+4617)=$40017

Total assets=Total equity+Total liabilities

Hence external financing needed=$73416-$40017-$29000

which is equal to

=$4399.

Sales 30324 Costs(17850*1.14) 20349 Taxable income $9975 Taxes@24% $2394 Net income $7581 Less:dividends(7581*0.390977443) $2964 Addition to retained earnings $4617

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