You are hired by a client to assist in long-term financial modeling. You gather the following information from the financial statements for the year that ended yesterday.

Sales $26,000

Net Income $2,000

Dividends $ 800

Your preliminary analysis reveals that:

• sales will increase by 15%

• assets, costs and current liabilities will be proportional to sales
• long-term debt is unrelated to sales
• payout ratio will be the same in the future

You know that the external funding needed (EFN) for the coming year will be $2,500. The client is contemplating changing the retention ratio to 70% in the coming year.

Do not re-calculate the EFN. Just carefully explain whether/why the EFN would change (increase, decrease, stay the same) or explain why there is not enough information to determine whether the EFN would change.