Question

The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 25 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.

CROSBY, INC. 2017 Income Statement
Sales				$	751,000
Costs					586,000
Other expenses					22,000
Earnings before interest and taxes				$	143,000
Interest paid					18,000
Taxable income				$	125,000
Taxes (23%)					28,750
Net income				$	96,250
Dividends	$	29,838
Addition to retained earnings		66,412

CROSBY, INC. Balance Sheet as of December 31, 2017
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	21,040		Accounts payable	$	55,200
Accounts receivable		43,980		Notes payable		14,400
Inventory		95,960		Total	$	69,600
Total	$	160,980		Long-term debt	$	134,000
Fixed assets				Owners’ equity
Net plant and equipment	$	427,000		Common stock and paid-in surplus	$	116,500
				Retained earnings		267,880
				Total	$	384,380
Total assets	$	587,980		Total liabilities and owners’ equity	$	587,980

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 25 percent growth rate in sales? (Do not round intermediate calculations.)

Answer 1

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