The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes):
Income Statement Balance Sheet
Sales $4,600 Assets $14,900 Debt $10,200
Costs 3,410 Equity 4,700
Net income $1,190 Total $14,900 Total $14,900
Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales
are projected to be $5,967. What is the external financing needed? (Do not round your intermediate
calculations.)
HINT: Start by calculating the growth in assets. Now we need to figure out how we will pay for the growth.
Next subtract off from that needed amount the estimated growth in internal equity (that is, the new retained
earnings that current shareholders use to purchase some of those new assets). Whatever amount is left over
is what we must raise in new, external financing. That financing may be in the form of new debt (new loans) or
new equity (new shares of stock).
$2,754
$3,164
$2,884
$2,634
$3,009
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To calculate the external financing needed, we need to estimate the growth in assets and the growth in internal equity.
First, calculate the growth in assets:
Assets growth = Next year's sales - Current year's sales
= $5,967 - $4,600
= $1,367
Next, calculate the growth in internal equity:
Internal Equity growth = Net income - Dividends
= $1,190 - $0
= $1,190
Now, subtract the growth in internal equity from the growth in assets to determine the external financing needed:
External Financing Needed = Assets growth - Internal Equity growth
= $1,367 - $1,190
= $1774
Therefore, the external financing needed is $1,774.
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