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External financing needed

ARI has current sales of $50 mil. Sales are expected to grow to $75 mil. next year. ARI currently has accounts receivable of $10 mil, inventories of $15 mil and net fixed assets of $20 mil. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $10 mil to a new level of $13 mil. next year. ARI wants to increase its cash balance at the end of next year by $2 mil. over its current cash balances which average $4 mil. Net income next year is forecasted to be $10 mil. Next year, ARI plans to pay dividends of $1 million, up from $500,000 this year. ARI's marginal tax rate is 34%. How much external financing does ARI require next year. I desperately need help with this problem. Thank you.

Solution Preview

The external financing is calculated as
External Financing Needed = Increase in assets - increase in accounts payable - increase in retained earnings
The increase in ...

Solution Summary

The solution explains how to calculate the amount of external financing needed

$2.19