The most recent financial statements for Fleury Inc., follow. Sales for 2012 are

Question

The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 20 percent growth rate in sales?

FLEURY, INC.
2011 Income Statement   Sales $ 725,000   Costs 591,000   Other expenses 12,000   Earnings before interest and taxes $ 122,000   Interest paid 14,000   Taxable income $ 108,000   Taxes (50%) 54,000   Net income 54,000   Dividends $ 33,360   Addition to retained earnings 20,640

Explanation / Answer

FLEURY, INC. Income Statement 2011 2012 Remarks   Sales 725,000 870000   Costs 591,000 709200   Other expenses 12,000 14400   Earnings before interest and taxes 122,000 146,400   Interest paid 14,000 14,000   Taxable income 108,000 132,400   Taxes (50%) 54,000 66200   Net income 54,000 66,200   Dividends 33,360 33,360 As no fress common stock is issued, with earlier dividend payout ratio on common stock, dividend will remain same   Addition to retained earnings 20,640 32,840 FLEURY, INC. Balance Sheet Assets Liabilities and Owners’ Equity Remarks 2011 2012 2011 2012   Current assets   Current liabilities     Cash 21,540 25848     Accounts payable 55,700 66840     Accounts receivable 33,860 40632     Notes payable 14,900 14,900 Notes Payable remain unchanged     Inventory 70,820 84984       Total 70,600 81740       Total 126,220 151464   Long-term debt 139,000 139,000   Fixed assets   Owners’ equity     Net plant and equipment 280,000 336000     Common stock and paid-in surplus 125,000 125,000     Retained earnings 71,620 104,460 71620+32840       Total 196,620 229,460   Total assets 406,220 487,464   Total liabilities and owners’ equity 406,220 450,200 Excess of Assets over Liabilities & Equity 37,264 So External Financing is required for $37,264

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