Question
The 2017 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2017 Sales $ 370,000 Costs 235,000 EBIT $ 135,000 Interest expense 27,000 Taxable
The 2017 financial statements for Growth Industries are presented below.
INCOME STATEMENT, 2017 | |||||||
Sales | $ | 370,000 | |||||
Costs | 235,000 | ||||||
EBIT | $ | 135,000 | |||||
Interest expense | 27,000 | ||||||
Taxable income | $ | 108,000 | |||||
Taxes (at 35%) | 37,800 | ||||||
Net income | $ | 70,200 | |||||
Dividends | $ | 42,120 | |||||
Addition to retained earnings | 28,080 | ||||||
BALANCE SHEET, YEAR-END, 2017 | |||||||||
Assets | Liabilities | ||||||||
Current assets | Current liabilities | ||||||||
Cash | $ | 6,000 | Accounts payable | $ | 13,000 | ||||
Accounts receivable | 11,000 | Total current liabilities | $ | 13,000 | |||||
Inventories | 33,000 | Long-term debt | 270,000 | ||||||
Total current assets | $ | 50,000 | Stockholders equity | ||||||
Net plant and equipment | 310,000 | Common stock plus additional paid-in capital | 15,000 | ||||||
Retained earnings | 62,000 | ||||||||
Total assets | $ | 360,000 | Total liabilities and stockholders' equity | $ | 360,000 | ||||
Sales and costs are projected to grow at 20% a year for at least the next 4 years. Both current assets and accounts payable are projected to rise in proportion to sales. The firm is currently operating at 75% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.60.
What is the required external financing over the next year
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