On account of its very recent entry into a lucrative market, Garland Company (whose financials are given below) projects an 18% increase in sales for next year (2020). NOTE: All numbers in the financials are in thousands of dollars. The company paid out $1.26 billion in dividends in 2019, and its payout ratio is constant. Current assets and net fixed assets, and all operating expenses, vary directly with sales. Accounts payables will also maintain their existing relationship to sales; the other liabilities, however, are not spontaneous. Management has decided that any required additional funding will be raised through long-term debt, on which it pays an interest rate of 9.5%. Any short-term debt will be rolled over at the same interest rate as existed at the end of 2019. Long-term debt will increase by the full amount of any estimated EFN (i.e., no principal pay-down on existing debt is anticipated for next year, 2020). The tax rate for 2019 will apply for 2020 as well.

Estimate the external financing needed (EFN) for 2020, based on the projected growth in sales, using the percentage of sales method. Make sure to set up an assumptions box, and automate the iterations needed to estimate EFN.

Garland Company Financials on the Next Page

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Garland Company

Balance Sheet, Year Ended Dec 31, 2019

Assets:

Cash and marketable

securities $500,000

Accounts receivable 800,000

Inventories 1,350,000

Prepaid expenses 50,000

Total current assets $2,700,000

Fixed assets 5,000,000

Less: accum. depr. (2,000,000)

Net fixed assets $3,000,000

Total assets $5,700,000

Liabilities:

Accounts payable $475,000

Notes payable 900,000

Total current liabilities $1,375,000

Long-term debt 1,200,000

Owner's equity 3,125,000

Total liabilities and owner's

equity $5,700,000

Garland Company

Income Statement, 2019

Net sales $8,000,000

Less: Cost of goods sold (3,500,000)

Selling and administrative

expense (2,000,000)

Depreciation expense (250,000)

Interest expense (150,000)

Earnings before taxes 2,100,000

Income taxes (700,000)

Net income $1,400,000