Question

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2014 are projected to grow by 20 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.

RETRO MACHINE, INC. 2013 Income Statement
Sales				$	725,000
Costs					591,000
Other expenses					12,000
Earnings before interest and taxes				$	122,000
Interest paid					14,000
Taxable income				$	108,000
Taxes (50%)					54,000
Net income				$	54,000
Dividends	$	33,360
Addition to retained earnings		20,640

RETRO MACHINE, INC. Balance Sheet as of December 31, 2013
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	21,540		Accounts payable	$	55,700
Accounts receivable		33,860		Notes payable		14,900
Inventory		70,820		Total	$	70,600
Total	$	126,220		Long-term debt	$	139,000
Fixed assets				Owners’ equity
Net plant and equipment	$	280,000		Common stock and paid-in surplus	$	125,000
				Accumulated retained earnings		71,620
				Total	$	196,620
Total assets	$	406,220		Total liabilities and owners’ equity	$	406,220

The firm is operating at full capacity and no new debt or equity is issued. Calculate the pro forma income statement and balance sheet for the company. (Do not round intermediate calculations.)

Pro Forma Income Statement
Sales	$
Costs
Other expenses
EBIT	$
Interest
Taxable income	$
Taxes (50%)
Net income	$

Pro Forma Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$			Accounts payable	$
Accounts receivable				Notes payable
Inventory				Total	$
Total	$			Long-term debt	$
Fixed assets				Owners’ equity
Net plant and equipment	$			Common stock and paid-in surplus	$
				Accumulated retained earnings
				Total	$
Total assets	$			Total liabilities and owners’ equity	$

What external financing is needed to support the 20 percent growth rate in sales? (Do not round intermediate calculations.)

EFN

$

Answer 1

In question it has been given that sales increases by 20%