Here are detailed, step-by-step solutions to the-choice questions using the provided financial statements. --- # 1. Dividends Forecast for 2 From the income statement: - **Net Income (2022)**: $106,145 - **Divends**: $42458 **To check accuracy:** Dividend payout ratio (2022): \[ \text{Dividend Payout Ratio} = \frac{\text{Dividends}}{\text{Net Income}} = \frac{42,458}{106,145} \approx .4 = 40\% \] If net income grows by 20% (since sales are forecasted to grow by 20%), we recalculate: \[ \text{Forecast Net Income (2022)} = 106,145 \times 1.20 = 127,374 \] \[ \text{Forecast Dividends (2022)} = 127,374 \times .4 = 50,950 \] Closest answer: **$50,949** **Answer:** $\boxed{\$50,949}$ --- # 2. Total Assets for 2022 Forecast Current total assets (2021): $508,000 Assuming all assets grow at the sales growth rate of 20%: \[ \text{Forecast Total Assets (2022)} = 508,000 \times 1.20 = 609,600 \] **Answer:** $\boxed{\$609,600}$ --- # 3. External Financing Required (EFR) for 2022 ### Step-by-Step: #### a) Calculate the increase in assets needed: \[ \Delta \text{Assets} = \text{Forecast Total Assets} - \text{2021 Total Assets} = 609,600 - 508,000 = 101,600 \] #### b) Calculate the increase in spontaneous liabilities (accounts payable and accruals): Current Liabilities: - Accounts Payable: $65,000 - Notes Payable: $9,000 (not spontaneous, typically negotiated) Only **Accounts Payable** is spontaneous. \[ \text{Increase in Spontaneous Liabilities} = 65,000 \times .20 = 13,000 \] #### c) Addition to Retained Earnings (from projected net income and payout ratio): Forecast Net Income: $127,374 Retained (from payout ratio): $127,374 \times .6 = $76,424 #### d) External Financing Required (plug): \[ \text{EFR} = \Delta \text{Assets} - \text{Increase in Spontaneous Liabilities} - \text{Addition to Retained Earnings} \] \[ \text{EFR} = 101,600 - 13,000 - 76,424 = 12,176 \] Closest answer: **$12,000** **Answer:** $\boxed{\$12,000}$ --- # 4. Possible Solutions for Financing Needs Which solutions are possible? - Increase short-term debt ✔️ - Reduce the dividend payout ratio ✔️ - Increase long-term debt ✔️ - Issue new common stock ✔️ - None of the answers presented are correct ✖️ **All of the above except 'None' are valid.** **Answer:** - Increase short-term debt - Reduce the dividend payout ratio - Increase long-term debt - Issue new common stock --- # 5. EFR if Operating at 75% Capacity If at 75% capacity, only **fixed assets** do not need to increase proportionally with sales. Only when sales exceed capacity do you invest in new fixed assets. - Current sales: $905,000 - Full capacity sales: $905,000 / .75 = $1,206,667 - Forecast sales (2022): $905,000 × 1.20 = $1,086,000 Since $1,086,000 < $1,206,667, **no new fixed assets needed.** So, only **current assets** increase by 20%: \[ \text{2021 Current Assets} = \$144,000 \] \[ \text{Increase in Current Assets} = 144,000 \times .20 = 28,800 \] Increase in spontaneous liabilities (accounts payable): \[ 65,000 \times .20 = 13,000 \] Addition to retained earnings (from above): $76,424 \[ \text{EFR} = \Delta \text{Current Assets} - \text{Increase in Spontaneous Liabilities} - \text{Addition to Retained Earnings} \] \[ \text{EFR} = 28,800 - 13,000 - 76,424 = -60,624 \] **Negative EFR** means the firm generates sufficient funds internally. **Answer:** $\boxed{\text{None of the answers presented are correct because the firm has sufficient internally generated funds to support its growth}}$ --- ## Summary Table | | Answer | |----------|--------------------------------------------| | 1 | $50,949 | | 2 | $609,600 | | 3 | $12,000 | | 4 | Increase short-term debt; Reduce dividend payout; Increase long-term debt; Issue new common stock | | 5 | None of the answers presented are correct because the firm has internally generated funds to support its growth | --- Let me know if you need further breakdowns or calculations.