the 2015 financial statements for growth industries are presented below:

Income Statement 2015

Sales $390,000

Costs $245,000

EBIT $145,000

Interest Expense $29,000

Taxable Income $116,000

Taxes ( at 35% ) $40,600

Net Income $75,400

Dividends $30,160

Addition to retained earnings $45,240

Balance Sheet Year End 2015

Assets Liabilities

Current Assets Current liabilities

Cash $8,000 Accounts payable $15,000

Accounts receivable $13,000 Total current liabilities $15,000

Inventories $29,000 Long term debt $290,000

Total current assets $50,000 Stockholders Equity

Net plant and equipment $330,000 Common stock plus additional paid in capital 15,000

Retained earnings $60,000

Total assets $380,000 Total liabilities and stockholder equity $380,000

Sales and costs in 2016 are projected to be 30% higher than in 2015. Both current assets and accounts payable are projected

to rise in proportion to sales. The fixed assets of growth industries are operating at only 75% of capacity. Interest expense in 2016

will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .40.

What is the required external financing over the next year?

Question:

Even if sales increase by 30%, the firm still has more than enough fixed assets to meet production. Only working capital will increase. Net working capital of the firm

in 2015 was $ 35,500. The increase in net working capital wil be $__________, which is less than the increase in the retained earnings. Thus required external financing is $_________. A negative external financing value indicates the firm will generate more cash than it needs to finance the projected growth. This extra cash can be used to reduce debt, repurchase shares, increase cash reserves, or fund future growth.This extra cash was primarily due to the firm;s excess production capacity.