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Assume the firm has a constant dividend payout ratio and a projected sales increase of 12 percent. All costs, assets, and current liabilities vary directly with sales. The firm is currently at full production. What is the external financing need? Currently, the firm’s sales =$4,700, net income is $420, total assets=7890, dividends=125, A/P =790, LTD= 3130, and common stock=2780, and retained earnings =1190

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jepessoa

Answer:

$521.45

Explanation:

the formula used to calculate EFN is:

EFN = (Assets/Sales) x ($ Δ Sales) - (Liabilities/Sales) x ($Δ Sales) - [Profit margin x forecasted sales x (1 - dividend payout)]

sales = $4,700

net income is $420

total assets = $7,890

dividends = $125, dividend payout = $125 / $420 = 29.76%

liabilities  $790

profit margin = $420 / $4,700 = 8.94%

forecasted sales = $5,264

change in sales = $564

EFN = (7,890/4,700) x (564) - (790/4,700) x (564) - [0.0894 x 5,264 x (1 - 0.2976)] = $946.80 - $94.80 - $330.55 = $521.45

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