Hoffman Company

Balance Sheets as of December 31, 2021 and 2022

2021 2022

Cash $ 40 $ 86

Marketable securities 24 20

Accounts receivable 225 304

Inventory 884 891

Net Fixed Assets 2,134 3,014

Total Assets $3,307 4,315

2021 2022

Accounts Payable $ 221 $ 245

Short-term Notes Payable 412 300

Long-term Deferred Taxes 617 712

Long-term Debt 1,954 2,945

Common Stock 322 322

Retained Earnings <219> <209>

Total Liabilities & Equity $3,307 4,315

Hoffman Company

2022 Income Statement

Sales $2,918

Less: Cost of Goods Sold 1,645

Less: Depreciation 221

Earnings Before Interest and Taxes 1,052

Less: Interest Paid 197

Earnings Before Taxes 855

Taxes 845

Net Income $ 10

Assume that all costs, assets, and accounts payable change spontaneously with sales. For simplicitys sake, assume interest expense also changes spontaneously with sales (even though you know it may not). The tax rate and dividend payout ratios remain constant. If the firms managers project a growth rate of 15 percent next year, answer the following:

1. What amount of external financing will be needed (if any) to support this level of growth? Show your work.
2. Based off your response to the previous question, if you determined that some external financing would be necessary to support the level of sales growth, how could it be achieved? If no external financing is needed, simply state so