Question

The most recent financial statements for Fleury Inc., follow. Sales for next year are projected to grow by 22 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.

FLEURY, INC.
Income Statement
Sales	$	573092
Costs		507669
Other expenses		10908
Earnings before interest and taxes	$	?
Interest paid		13967
Taxable income	$	?
Taxes (30%)		?
Net income		?
Dividends	$	8316

FLEURY, INC.
Balance Sheet
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	22608		Accounts payable	$	51034
Accounts receivable		39842		Notes payable		17061
Inventory		70054
				Long-term debt	$	118838
Fixed assets
Net plant and equipment	$	444760		Owners’ equity
				Common stock and paid-in surplus	$	124367
				Retained earnings		?

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 22 percent growth rate in sales?

Answer 1

FLEURY, INC.
Income Statement
Sales	$	573092
Costs		507669
Other expenses		10908
Earnings before interest and taxes	$	54515
Interest paid		13967
Taxable income	$	40548
Taxes (30%)		14191.8
Net income		26356.2
Dividends	$	8316

Dividend Payout=8316/26356.2=31.55%

FLEURY, INC.
Balance Sheet
Assets		Liabilities and Owners’ Equity
Current assets		Current liabilities
Cash	22608	Accounts payable	51034
Accounts receivable	39842	Notes payable	17061
Inventory	70054
		Long-term debt	118838
Fixed assets
Net plant and equipment	444760	Owners’ equity
		Common stock and paid-in surplus	124367
		Retained earnings	265964
	577264		577264

After 22% increase

FLEURY, INC.
Balance Sheet
Assets		Liabilities and Owners’ Equity
Current assets		Current liabilities
Cash	27581.76	Accounts payable	62261.48
Accounts receivable	48607.24	Notes payable	20814.42
Inventory	85465.88
		Long-term debt	118838
Fixed assets
Net plant and equipment	542607.20	Owners’ equity
		Common stock and paid-in surplus	124367
		Retained earnings	291138
	704262.08		617419

EFN

=

Total assets – Total liabilities and equity

=704262.08-617419

=86842.88

Workigngs

FLEURY, INC.
Income Statement
Sales	699172.24
Costs	619356.18
Other expenses	13307.76
Earnings before interest and taxes	66508.30
Interest paid	13967.00
Taxable income	52541.30
Taxes (30%)	15762.39
Net income	36778.91
Dividends 31.55%*36778.91	11604.61

Addition To retained Eannings =36778.97-11604.61