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7 July, 23:25

The most recent financial statements for Hornick, Inc., are shown here (assuming no income taxes) : Income Statement Balance Sheet Sales $ 8,300 Assets $ 23,200 Debt $ 9,000 Costs 5,490 Equity 14,200 Net income $ 2,810 Total $ 23,200 Total $ 23,200 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $9,545. What is the external financing needed? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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  1. 8 July, 03:01
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    The external financing needed is $248.50

    Explanation:

    For computing the external financing needed, first we have to find out the increase percentage of sales which is shown below:

    As the given sales is $8,300 and projected sales is $9,545

    So, the increase in percentage = (Projected sales - given sales) : given sales * 100

    = ($9,545 - $8,300) : 8,300 * 100

    = 15%

    Now the projected net income equals to

    = Projected sales - projected cost

    = $9,545 - $6,313.50

    = $3,231.50

    The projected cost is computed below

    = Cost + (cost * increase in percentage of sales)

    = ($5,490 + $5,490 * 15%)

    = $6,313.50

    It is given that the assets and costs are proportional to sales,

    So, the new asset value is = Assets + Assets * increase percentage of sales

    = $23,200 + $23,200 * 15%

    = $23,200 + $3,480

    = $26,680

    And, the equity value = Equity + net income

    = $14,200 + $3,231.50

    = $17,431.50

    Plus, the debt is $9,000

    The liabilities side = $17,431.50 + $9,000 = $26,431.50

    So, the difference would be

    = Asset - Liabilities

    = $26,680 - $26,431.50

    = $248.50
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