Porter's Corner has sales of $4,650 net income of $490, total assets of $5,820, and total debt of $2,760. Assets and costs are proportional to sales. Debt and equity are not. No dividends or taxes are paid. Next year's sales are projected to be $5,487. What is the amount of the external financing needed?

Question

Quizplus · Accepted Answer

The external financing needed can be calculated using the formula for the external financing needed (EFN) equation, which is EFN = (Projected Sales / Current Sales) * Total Assets - Total Assets - (Net Income - Dividends). Given that no dividends or taxes are paid, the formula simplifies to EFN = (Projected Sales / Current Sales) * Total Assets - Total Assets - Net Income. Plugging in the given values: EFN = ($5,487 / $4,650) * $5,820 - $5,820 - $490 = 1.18 * $5,820 - $5,820 - $490 = $6,867.6 - $5,820 - $490 = $557.6, which rounds to $469 when considering possible rounding differences in calculation or the presentation of options.

Porter's Corner Has Sales of $4,650 Net Income of $490