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Problem 3-21 Calculating EFN The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 25 percent. Interest

Problem 3-21 Calculating EFN

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2017 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

RETRO MACHINE, INC. 2016 Income Statement
Sales $ 761,000
Costs 596,000
Other expenses 17,000
Earnings before interest and taxes $ 148,000
Interest paid 18,000
Taxable income $ 130,000
Taxes (20%) 26,000
Net income $ 104,000
Dividends $ 20,800
Addition to retained earnings 83,200

RETRO MACHINE, INC. Balance Sheet as of December 31, 2016
Assets Liabilities and Owners Equity
Current assets Current liabilities
Cash $ 22,040 Accounts payable $ 56,200
Accounts receivable 34,360 Notes payable 15,400
Inventory 71,320 Total $ 71,600
Total $ 127,720 Long-term debt $ 144,000
Fixed assets Owners equity
Net plant and equipment $ 450,000 Common stock and paid-in surplus $ 130,000
Accumulated retained earnings 232,120
Total $ 362,120
Total assets $ 577,720 Total liabilities and owners equity $ 577,720

The firm is operating at full capacity and no new debt or equity is issued. Calculate the pro forma income statement and balance sheet for the company. What external financing is needed to support the 25 percent growth rate in sales? EFN

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