The 2017 financial statements for Growth Industries are presented below Sales Co

Question

The 2017 financial statements for Growth Industries are presented below Sales Costs EBIT Interest expense Taxable income Taxes (at 35%) Net income s 48e,eee 258,86 158,e90 30,808 S 128,800 42,800 78,888 Dividends Addition to retained earnings 39,808 39,800 BALANCE SHEET, YEAR-ENo, 2017 Assets Liabilities Current assets Current 1iabilities Cash Accounts receivable Inventories $9,80e 14,8e0 27,000 Accounts payable Total current liabilities $ 16,0ee 16,800 360,000 Long-term debt Total current assets s se,ee0 Stockholders' equity Net plant and equipnent 340,600Common stock plus additional paid-in capital Retained earnings Total liabilities and stockholders' equity 15,000 9,800 $ 39e,8ee Total assets s 396,00e Sales and costs are projected to grow at 30% a year for at least the next 4 years. Both current assets and accounts payable are projected to rise in proportion to sales. The firm Is currently operating at 75% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.50 What is the required external financing over the next year? (Negetive amounts should be Indliceted by a minus sign.) mal financing

Explanation / Answer

Year 1 Year 2 Year 2 Sales    400,000.00 ^30%    520,000.00 =(1+30%)*400000 Costs    250,000.00 ^30%    325,000.00 =(1+30%)*250000 EBIT    150,000.00    195,000.00 Sales less cost Interest Expense      30,000.00      30,000.00 Shall be 10% of outstadnign debt at start of year . So maintain 3000 Taxable Income    120,000.00    165,000.00 =EBIT less Debt Tax @ 35%      42,000.00      57,750.00 =35%x165000 net Income      78,000.00    107,250.00 =165000-57750 Dividends      39,000.00      53,625.00 =50%*107250 Addition to retained earnings      39,000.00      53,625.00 To Bal Sheet Assets Current Assets Cash        9,000.00 ^30%      11,700.00 =9000*(1+30%) Account Receivables      14,000.00 ^30%      18,200.00 =14000*(1+30%) Inventories      27,000.00 ^30%      35,100.00 =27000*(1+30%) Total Current Assets      50,000.00 ^30%      65,000.00 =50000*(1+5%) (Total 30%, Excess capacity 100%-75%=25%, balance 5%) Net Plant and Equipment    340,000.00 ^30%    357,000.00 =340000*(1+5%) (Total 30%, Excess capacity 100%-75%=25%, balance 5%) Total Assets    390,000.00    422,000.00 Liabilites Current liabilities Accounts payabels      16,000.00 ^30%      20,800.00 =16000*(1+30%) Total Current Liability      16,000.00      20,800.00 Long term debt    300,000.00 X Stockholders Equity Common Stock+paid up capital      15,000.00      15,000.00 Retained Earnings      59,000.00      53,625.00 From P&L Total Liability    390,000.00      89,425.00 Assets - Liability = Long term Debt =422000-89425    332,575.00 $ External Financing required is 332575$

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