Problem 6-3 External financing [LO1] Tobin Supplies Company expects sales next year to be $500,000. Inventory and accounts receivable will increase $90,000 to accommodate this sales level. The company has a steady profit margin of 12 percent with a 40 percent dividend payout. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.
Input variables:
Sales	$500,000
Inventory and A/R increase	$90,000
Profit margin %	0.12
Dividend payout %	0.40
Solution and Explanation:
Net income
Dividends
Net income
Less: Dividends
Increase in retained earnings
Increase in assets
Less: Increase in retained earnings
External funds needed