Question

Find below the financial statements for Kenning Corp. Income Statement Balance Sheet Sales $5,000 Assets $14,800 Debt $11,000 Costs 3,410 Equity 3,800 Net income $1,590 Total $14,800 Total $14,800 Assume no income taxes. Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid and next year's sales are projected to be $5,970. What is the EFN?

Answer 1

Answer: $972.74

Explanation:

From the information given, the external finance is calculated thus:

Sales growth = ($5970 - $5000) / $5000 × 100 = $970/$5000 × 100 = 19.4%

Then, we calculate the net income which will be:

= Sales - Cost

= $5970 - ($3410 × 1.194)

= $5970 - $4071.54

= $1898.46

Total asset = $14800 × 1.194 = $17671.20

Total equity = $3800 + $1898.46 = $5698.46

External financing needed:

= Total assets - Total equity - Debt

= $17671.20 - $5698.46 - $11,000

= $972.74