Problem 4-28 (Algo) Percent-of-sales method [LO4-3]The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firmis expecting a 30 percent increase in sales next year, and management is concerned about the company's need for external funds.The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient assetutilization in the existing store. Among liabilities, only current liabilities vary directly with sales.SalesExpensesEarnings before interest and taxesInterestEarnings before taxesTaxesEarnings after taxesDividendsIncome StatementFixed assetsCashAccounts receivableInventoryCurrent assetsTotal assetsAssetsThe firm$ 250,000184,800$ 65,2008,600$ 56,60016,600$ 40,000$ 16,000Balance Sheet (in $ millions)$ 125,00096,000Liabilities and Stockholders' Equity$4,000 Accounts payable53,000 Accrued wages68,000 Accrued taxesCurrent liabilitiesNotes payableLong-term debtCommon stockRetained earnings$ 221,000 Total liabilities and stockholders' equity$ 23,5002,0004,500$ 30,0008,60023,000120,00039,400$ 221,000Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profitmargin and payout ratio must be found from the income statement.)Note: Do not round intermediate calculations. Input your answer as positive a value.

External resources are those that come from a source outside the company and are used to boost cash…

Problem 4-28 (Algo) Percent-of-sales method [LO4-3] The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 30 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Income Statement Sales Expenses Earnings before interest and taxes Interest Earnings before taxes. Taxes Earnings after taxes Dividends Cash Accounts receivable Inventory Current assets Fixed assets Total assets Assets The firm $ 250,000 184,800 $ 65,200 8,600 $ 56,600 16,600 $ 40,000 $ 16,000 Balance Sheet (in $ millions) Liabilities and Stockholders' Equity $ 4,000 Accounts payable Accrued wages 53,000 68,000 Accrued taxes $ 125,000 96,000 Current liabilities Notes payable Long-term debt Common stock Retained earnings $ 221,000 Total liabilities and stockholders' equity $ 23,500 2,000 4,500 $30,000 8,600 23,000 120,000 39,400 $ 221,000 Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) Note: Do not round intermediate calculations. Input your answer as positive a value.

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 2STP