Assume costs, assets, and accounts payable all increase at the same rate as sales. Also assume 80% of net income is paid out in dividends. If sales grow at 25%, compute external ﬁnancing
Needed.
A) $0.00
B) $4.50
C) $22.50
D) $29.50
E) $52.00

Question

Quizplus · Accepted Answer

External financing needed = (Increase in assets - Increase in accounts payable) - (Increase in retained earnings)= (25% * Assets - 25% * Accounts payable) - (20% * Net income)= (25% * 100 - 25% * 20) - (20% * 80)= (25 - 5) - 16= $4

Assume Costs, Assets, and Accounts Payable All Increase at the Same