Question

7. The most recent financial statements for Fleur-de-Lis Corporation follow. Analysts project sales for 2019 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. If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 20 percent growth rate in sales? Round dollar amounts to the nearest whole dollar.

Fleur-de-Lis Corporation 2018 Income Statement

Sales $743,000

Costs $578,00

Other Expenses $15,200

EBIT $149,800

Interest Paid $11,200

Taxable Income $138,600

Taxes $48,510

Net Income $90,090

Dividends $27,027

Addition to RE $63,063

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Fleur-de-Lis Corporation 2018 Balance Sheet

Current Assets:

Cash $20,240

Accounts receivable $32,560

Inventory $69,520

Total Current $122,320

Fixed Assets:

Net Plant & Equip $330,400

Total Assets $452,720

Current Liabilities:

Accounts Payable $54,400

Notes Payable $13,600

Total Current $68,000

Long-Term Debt $126,000

Owner's Equity:

Common Stock $112,000

Retained Earnings $146,720

Total $258,720

Total $452,720

8. Suppose Fleur-de-Lis Corporation was operating at only 80 percent capacity in 2018. What is EFN if they
cannot reduce their fixed assets? What is EFN if they can reduce their fixed assets?

Answer 1

External Financing needed (EFN) refers to the fund to be raised in order to support the increase in sales.

Here the sales in 2019 have grown by 20%.

7) 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.

PROFORMA INCOME STATEMENT (IN $)

Particulars	2018	2019 (20% growth)
Sales (1)	743,000	891,600
Cost (2)	578,000	693,600
other expenses (3)	15,200	18,240
EBIT (4)= (1) - (2) - (3)	149,800	179,760
Interest paid (5)	11,200	11,200
Taxable income/ EBT (6) = (4)- (5)	138,600	168,560
Taxes (7)	48,510	48,510
Net income (8)= (6)-(7)	90,090	120,050
Dividends	27,027	36,015
Addition to retained earnings	63,063	84,035

PROFORMA BALANCE SHEET

ASSETS	2018	2019	LIABILITIES	2018	2019
Current Assets *			Current liabilities
Cash	20,240	24,288	Accounts Payable *	54,400	65,280
Accounts Receivable	32,560	39,072	Notes Payable **	13,600	13,600
Inventory	69,520	83,424	Total Current liabilities	68,000	78,880
Total Current Assets	122,320	146,784	Long term debt **	126,000	126,000
Fixed Assets *			Owner's equity
Net plant & Equipment	330,400	396,480	common stock **	112,000	112,000
Total Fixed Assets	330,400	396,480	Addition to Retained earnings ***	146,720	230,755
			Total owner's equity	258,720	342,755
Total Assets	452,720	543,264	Total liabilities & equity	452,720	547,635

* The current assets, Fixed assets and accounts payable will increase by 20%

** Common stock, Notes payable and long -term debt will remain constant

*** Retained Earning for 2019= Retained earning for 2018 + Addition to Retained earning in 2019

= 146,720 + 84,035 = 230,755

The EFN needed is = Assets - Liabilities

= 543,264 - 547,635 = -$4,371

Due to the time constraints, i was not able to complete the 8th part.. please ask seperately