The most recent financial statements for Summer Tyme, Inc., are shown here:. Income Statement Balance Sheet
Sales $3,700 Current assets $4,200 Current liabilities $970
Costs 1,800 Fixed assets 5,700 Long-term debt 3,500
Taxable
income $1,900 Equity 5,430
Taxes (34%) 646 Total $9,900 Total $9,900
Net income $1,254
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.)
EFN = needed new long-term debt and/or external equity

$‭1,448.75‬

Explanation:

Sales are to increase by 25% along with Assets, costs and current liabilities.

Sales (3,700 * 1.25)                              $‭4,625‬

Less: Costs ( 1,800 * 1.25)                   $‭2,250‬

Taxable Income                                   $2,375

Tax (2,375 * 34%)                                 $807.50

Net Income                                           $1,567.50          

Addition to retained earnings = Net Income - Dividends

= 1,567.50 - ( 1,567.50 * 50%)

= $‭783.75‬

Equity = 5,430 + 783.75 = $‭6,213.75‬

Assets = 9,900 * 1.25 = $‭12,375‬

Total Liability = Long term debt + Current liability

= 3,500 + (970 * 1.25)

= $‭4,712.5‬0

Assets = Liability + Equity

12,375 ≠ 4,712.50 + 6,213.75

External financing needed = 12,375 - 4,712.50 - 6,213.75

= $‭1,448.75‬

this business is a price setter.

hope this

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