Question
The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 370,000 Costs 235,000 EBIT $ 135,000 Interest expense 27,000 Taxable
The 2019 financial statements for Growth Industries are presented below.
INCOME STATEMENT, 2019 | ||||||||
Sales | $ | 370,000 | ||||||
Costs | 235,000 | |||||||
EBIT | $ | 135,000 | ||||||
Interest expense | 27,000 | |||||||
Taxable income | $ | 108,000 | ||||||
Taxes (at 21%) | 22,680 | |||||||
Net income | $ | 85,320 | ||||||
Dividends | $ | 51,192 | ||||||
Addition to retained earnings | $ | 34,128 | ||||||
BALANCE SHEET, YEAR-END, 2019 | ||||||||
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 plus 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? (Enter excess cash as a negative number with a minus sign.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started