proportion to sales. The firm is currently operating at full capacity, so it plans to increase fixed assets in proportion to sales. What external financing will be required by the firm? Interest expense in 2010 will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .40. (LO2)

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INCOME STATEMENT, 2009 Sales $200,000 Costs 150,000 EBIT 50,000 Interest expense 10,000 Taxable income 40,000 Taxes (at 35%) 14,000 Net income $ 26,000 Dividends 10,400 Addition to retained earnings 15,600 BALANCE SHEET, YEAR-END, 2009 Assets Liabilities Current assets Current liabilities Cash $ 3,000 Accounts payable $ 10,000 Accounts receivable 8,000 Total current liabilities $ 10,000 Inventories 29,000 Long-term debt 100,000 Total current assets $ 40,000 Stockholders' equity Net plant and equipment 160,000 Common stock plus additional 15,000 paid-in capital Retained earnings 75,000 Total liabilities plus Total assets $200,000 stockholders' equity $200,000