The most recent financial statements for Cardinal, Inc., are shown here: Income
ID: 2818970 • Letter: T
Question
The most recent financial statements for Cardinal, Inc., are shown here: Income Statement Balance Sheet Sales $ 32,200 Assets $ 75,600 Debt $ 38,800 Costs 18,550 Equity 36,800 Taxable income $ 13,650 Total $ 75,600 Total $ 75,600 Taxes (22%) 3,003 Net income $ 10,647 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $4,000 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $37,030. What is the external financing needed? (Do not round intermediate calculations.)
Explanation / Answer
Growth rate in sales=(37030-32200)/32200=15%
Dividend payout ratio=Dividends/Net income
=(4000/10647)=0.375692683
Total assets would be=$75600*1.15=$86940
Total equity would be=$36800+Addition to retained earnings
=$36800+$7644.05=$44,444.05
Total assets=Total liabilities+Total equity
Hence external financing needed=$86940-$$44,444.05-$38800
which is equal to
=$3695.95
Sales 37030 Costs(18550*1.15) $21332.5 Taxable income $15697.5 Taxes@22% $3453.45 Net income $12244.05 Less:dividends(0.375692683*12244.05) $4600 Addition to retained earnings $7644.05