The Paper Mill Is Operating at Full Capacity

Multiple Choice

The Paper Mill is operating at full capacity. Assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The firm has sales of $42,700, net income of $5,500, total assets of $48,900, current liabilities of $3,650, long-term debt of $18,100, owners' equity of $27,150, and dividends of $1,925. What is the external financing need if sales increase by 14 percent?

A) −$1,816
B) −$1,268
C) $1,031
D) $3,504
E) $2,260