2

Item 1

Item 1 7.33 points The 2017 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2017 Sales $ 270,000 Costs 185,000 EBIT $ 85,000 Interest expense 17,000 Taxable income $ 68,000 Taxes (at 35%) 23,800 Net income $ 44,200 Dividends $ 17,680 Addition to retained earnings 26,520

BALANCE SHEET, YEAR-END, 2017 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 170,000 Total current assets $ 40,000 Stockholders' equity Net plant and equipment 210,000 Common stock plus additional paid-in capital 15,000 Retained earnings 55,000 Total assets $ 250,000 Total liabilities and stockholders' equity $ 250,000

Sales and costs are projected to grow at 30% 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 75% 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 0.40.

What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)