Question

The most recent financial statements for Kerch, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Sales $4,500 Assets $14,900 Debt $10,500 Costs 3,420 Equity 4,400 Net income $1,080 Total $14,900 Total $14,900 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $5,959. What is the external financing needed

Answer 1

Answer: $3400.34

Explanation:

The following can be gotten from the question:

Growth rate in sales will be:

= (5959 - 4500)/4500

= 1459/4500

= 0.3242

Sales = $5959

Cost = 3420 × (1 + 0.3242)

= 3420 × 1.3242

= 4528.764

Net income = 5959 - 4528.764

= 1430.236

Total assets will be:

= $14900 × 1.3242

= $19730.58

Total equity will be:

= 4400 + 1430.236

= $5830.236

Total assets will be:

= Total equity + Total debt

$19730.58 = $5830.236 + $10500

External debt =$19730.58 - $16330.236

External debt = $3400.344