Question

The 2017 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2017
Sales				$	350,000
Costs					225,000
EBIT				$	125,000
Interest expense					25,000
Taxable income				$	100,000
Taxes (at 35%)					35,000
Net income				$	65,000
Dividends	$	26,000
Addition to retained earnings		39,000

  

BALANCE SHEET, YEAR-END, 2017
Assets					Liabilities
Current assets					Current liabilities
Cash	$	4,000			Accounts payable	$	11,000
Accounts receivable		9,000			Total current liabilities	$	11,000
Inventories		27,000			Long-term debt		250,000
Total current assets	$	40,000			Stockholders’ equity
Net plant and equipment		290,000			Common stock plus additional paid-in capital		15,000
					Retained earnings		54,000
Total assets	$	330,000			Total liabilities and stockholders' equity	$	330,000

  

Sales and costs are projected to grow at 20% 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 0.40.

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

Answer 1

The obtained result is provided below.