Question

The 2019 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2019
Sales				$	250,000
Costs					175,000
EBIT				$	75,000
Interest expense					15,000
Taxable income				$	60,000
Taxes (at 21%)					12,600
Net income				$	47,400
Dividends	$	28,440
Addition to retained earnings	$	18,960

  

BALANCE SHEET, YEAR-END, 2019
Assets					Liabilities
Current assets					Current liabilities
Cash	$	8,000			Accounts payable	$	15,000
Accounts receivable		13,000			Total current liabilities	$	15,000
Inventories		29,000			Long-term debt		150,000
Total current assets	$	50,000			Stockholders’ equity
Net plant and equipment		190,000			Common stock plus additional paid-in capital		15,000
					Retained earnings		60,000
Total assets	$	240,000			Total liabilities plus stockholders' equity	$	240,000

  

Sales and costs are projected to grow at 40% 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 70% 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 0.60.

What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)

Answer 1