The 2000 financial statements for Growth Industries are presented below. Sales and costs in 2001 are projected to be 20 percent higher than in 2000.

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. What external financing will be required by the firm? Interest expense in 2001 will equal 10 percent of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 40.

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INCOME STATEMENT, 2000 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 Retained earnings 15,600