Sales and costs in 2013 are projected to be 20% higher than in 2012. Both curren
ID: 2702258 • Letter: S
Question
Sales and costs in 2013 are projected to be 20% higher than in 2012. Both current assets and accounts payable are projected to rise in proportion to sales. The fixed assets of Growth Industries are operating at only 75% of capacity. Interest expense in 2013 will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .40.
What is required external financing over the next year? (Leave no cells blank - be certain to enter "0" wherever required.)
Even if sales increase by 20%, the firm still has more than enough fixed assets to meet production. Only working capital will increase. Net working capital of the firm in 2012 was $. The increase in net working capital will be $, which is less than 2013 retained earnings. Thus required external financing is .
The 2012 financial statements for Growth Industries are presented below.Explanation / Answer
Net working capital of the firm in 2012 = current assets - current liabilities = 40000-10000 =30000
2,00,000 sales require 30,000 working capital
projected 2.40,000 sales require 36,000 working capital hence
The increase in net working capital will be =6,000
Thus required external financing is =19280$
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