Question

The 2017 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2017 Sales $ 290,000 Costs 195,000 EBIT $ 95,000 Interest expense 19,000 Taxable income $ 76,000 Taxes (at 35%) 26,600 Net income $ 49,400 Dividends $ 29,640 Addition to retained earnings 19,760 BALANCE SHEET, YEAR-END, 2017 Assets Liabilities Current assets Current liabilities Cash $ 5,000 Accounts payable $ 12,000 Accounts receivable 10,000 Total current liabilities $ 12,000 Inventories 25,000 Long-term debt 190,000 Total current assets $ 40,000 Stockholders’ equity Net plant and equipment 230,000 Common stock plus additional paid-in capital 15,000 Retained earnings 53,000 Total assets $ 270,000 Total liabilities and stockholders' equity $ 270,000 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 full 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? (Negative amounts should be indicated by a minus sign.)

Answer 1