Galehouse Gas Stations Inc. expects sales to increase from $1,510,000 to $1,710,000 next year. Galehouse believes that net assets (Assets - Liabilities) will represent 30 percent of sales. His firm has an 8 percent return on sales and pays 45 percent of profits out as dividends.

The net income will increase by 16,000, the dividends will increase by 7,200 and 8,800 increase in equity

Explanation:

Increase in sale for 200,000 (1,710,000-1,510,000)

Now, we calculate the increase in the net income

200,000 x 8% = 16,000 increase on net income

And now the increase in dividends

16,000 x 45% dividends payout ratio = 7,200 increase in dividends

With this we can relate to how much the retained earnings will grow based on this increase on sales:

16,000 - 7,200 = 8,800 increase in equity