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The 2015 financial statements for Growth Industries are presented below: INCOME STATEMENT, 2015 Sales $ 290,000 Costs 195,000 EBIT $ 95,000 Interest expense 19,000 Taxable

The 2015 financial statements for Growth Industries are presented below:

INCOME STATEMENT, 2015
Sales $ 290,000
Costs 195,000
EBIT $ 95,000
Interest expense 19,000
Taxable income $ 76,000
Taxes (at 35%) 26,600
Net income $ 49,400
Dividends $ 29,640
Addition to retained earnings 19,760

BALANCE SHEET, YEAR-END, 2015
Assets Liabilities
Current assets Current liabilities
Cash $ 5,000 Accounts payable $ 12,000
Accounts receivable 10,000 Total current liabilities $ 12,000
Inventories 25,000 Long-term debt 190,000
Total current assets $ 40,000 Stockholders equity
Net plant and equipment 230,000 Common stock plus additional paid-in capital 15,000
Retained earnings 53,000
Total assets $ 270,000 Total liabilities and stockholders equity $ 270,000

Sales and costs in 2016 are projected to be 20% 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 .60.

What is the required external financing over the next year?

Even if sales increase by 20%, 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 $____________. The increase in net working capital will 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.

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