For the next fiscal year you forecast net income of $50 000 and ending assets of $500 000. Your

QUESTION

For the next fiscal year, you forecast net income of $50,000 and ending assets of $500,000. Your firms payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,000. What is your net new financing needed for next year?
Solution: Net Income = $50000 Dividend Payout Ratio = 10% Additional fund needed can be calculated as: Additional Funds Needed = Projected Increase in Assets Increase in Liabilities Increase in Retained Earnings Addition in Retained Earnings = Net Income*(1-Dividend Payout Ratio) = $50000*(1-10%) = $45000 Beginning Stockholders Equity = $300000 Beginning Total Liabilities

= $120000 Total Beginning Assets = Total Liabilities + Total Equity = $300000 + $120000 = $420000 Ending Assets = $500000 Increase in Assets = $500000 $420000 = $80000 Increase in Liabilities = $10000 So, Additional Funds Needed = $80000 $10000 â€

ANSWER:

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