Question

The 2017 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2017 Sales $ 390,000 Costs 245,000 EBIT $ 145,000 Interest expense 29,000 Taxable income $ 116,000 Taxes (at 35%) 40,600 Net income $ 75,400 Dividends $ 30,160 Addition to retained earnings 45,240 BALANCE SHEET, YEAR-END, 2017 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 290,000 Total current assets $ 50,000 Stockholders’ equity Net plant and equipment 330,000 Common stock plus additional paid-in capital 15,000 Retained earnings 60,000 Total assets $ 380,000 Total liabilities and stockholders' equity $ 380,000 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 0.40. What is the required external financing over the next year? (Negative amounts should be indicated by a minus sign.)

Answer 1

The inputs the formulas used is as follows:

The result is as follows: