Question

LM Products has total assets of $48,900, total debt of $21,750, long-term debt of $18,100, owners' equity of $27,150, dividends paid of $1,925, and net income of $5,500. Assume net working capital and all company costs increase directly with sales. Also assume the tax rate and the dividend payout ratio are constant and the company is currently operating at full capacity. What is the external financing need if sales increase by 4 percen?

Answer 1

Answer:

External financing need (EFN) = -$1,908

Explanation:

Projected total assets = $48,900 (1.04)

Projected total assets = $50,856

Projected current liabilities = ($21,750 −18,100) (1.04)

Projected current liabilities = $3,796

Projected owners' equity = $27,150 + [($5,500 −1,925) (1.04)]

Projected owners' equity = $30,868

EFN = $50,856 −3,796 −18,100 −30,868

EFN = −$1,908