Sterling Resorts Co. has total assets worth $13,442,975. It is expecting to grow its revenue at a rate of 25 percent next year. For next year, it expects a net income of $3,475,321 and will pay out 45 percent as dividends. What is the external financing needed by the firm to meet its growth expectations?

Question

Quizplus · Accepted Answer

The external financing needed (EFN) is calculated as: EFN = (Assets * Growth Rate) - (Net Income * (1 - Dividend Payout Ratio)). Here, EFN = ($13,442,975 * 0.25) - ($3,475,321 * (1 - 0.45)) = $3,360,743.75 - $1,911,426.55 = $1,449,317.20.