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Determine firms asset vary proportionately with sales

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Question 1: Please refer to the hypothetical financial statements below. Assume a constant profit margin and dividend payout ratio. Also, assume that this firm's assets and liabilities all vary proportionately with sales. If sales are projected to increase by 10 percent, what is the external financing needed for the following year? Hint: In order to determine this amount, you must first construct a forecasted income statement. What if sales are expected to increase by 20%?

2015                  Income Statement
Sales                              17300
Cost of goods sold            10600
Depreciation                      3280
EBIT                                3450
Interest                              680
EBT                                  2770
Tax                                   940
Net Income (EAT)               1830
Dividends                             450

Balance Sheet
Assets                            Current assets:
Cash and securities                  350
Accounts receivable                 940
Inventories                            2360
Total current assets               3650
Net fixed assets                   10850
Total assets                        14500

Liabilities and owners' equity
Current liabilities
Bank loan                               0
Accounts payable                   1920
Total current liabilities             1920
Long-term debt                       3500
Common stock                        7500
Retained earnings                    1580
Total liabilities and owners' equity 14500

Attachment:- finicial statement'.rar

Reference no: EM132451877

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