External financing needed: Nederland Finance Company has total assets worth $9,751,223. It is expecting to grow its revenue at a rate of 20 percent next year and will have a net income of $2,213,564 next year. The firm pays out 65 percent of its net income as dividends. What is the external financing needed by this firm to meet its growth expectations?

Question

Quizplus · Accepted Answer

The firm needs to finance 20% growth of its assets, which is $1,950,244.60. Retained earnings are 35% of net income, which is $774,747.40. The external financing needed is the difference: $1,950,244.60 - $774,747.40 = $1,175,497.20.

External Financing Needed: Nederland Finance Company Has Total Assets Worth