The most recent financial statements for Kerch, Inc., are shown here (assuming no income taxes) : Income Statement Balance Sheet Sales $ 8,400 Assets $ 14,000 Debt $ 6,000 Costs 6,390 Equity 8,000 Net income $ 2,010 Total $ 14,000 Total $ 14,000 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year's sales are projected to be $9,996. What is the external financing needed? (Do not round intermed

Answer: $268.10

Explanation:

Assets and Costs are proportional to sales meaning they grow at the same rate.

Sales rate of growth is,

= (9,996-8,400) / 8400

=19%

Assuming that costs grew by 19% then Costs next year will be,

= 6,390 * (1 + 0.19)

= $7,604.1

Meaning that Net Income is,

= Sales - Costs.

= 9,996 - 7,604.1

= $2,391.9

Retained earnings or net income is added to Equity

Total Equity = 8,000 + 2391.9

Total Equity = $10,391.90

Total Assets also grew by 19% as per the question so,

= 14,000 * (1 + 0.19)

=$16,660

Going by the Accounting Equation,

Total assets = Total equity + Total debt

Hence external financing needed

16,660 = 10391.9 + 6000 + Additional funding

Additional funding = 16,660 - 10391.9 - 6,000

Additional funding = $268.10