Question
The most recent financial statements for ABC Inc., follow. Sales for next year are projected to grow by 25 percent. Interest expense will remain constant;
The most recent financial statements for ABC Inc., follow. Sales for next year 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. |
ABC, INC. Income Statement of Last Year | ||||||
Sales |
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| $ | 759,000 |
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Costs |
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| 594,000 |
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Other expenses |
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| 15,000 |
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Earnings before interest and taxes |
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| $ | 150,000 |
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Interest paid |
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| 16,000 |
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AB Taxable income |
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| $ | 134,000 |
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Taxes (30%) |
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| 40,200 |
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Net income |
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| $ | 93,800 |
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Dividends | $ | 35,140 |
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Addition to retained earnings |
| 58,660 |
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ABC, INC. Balance Sheet of Last Year | |||||||
Assets |
| Liabilities and Owners Equity |
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Current assets |
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| Current liabilities |
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Cash | $ | 21,840 |
| Accounts payable | $ | 56,000 |
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Accounts receivable |
| 34,160 |
| Notes payable |
| 15,200 |
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Inventory |
| 71,120 |
| Total | $ | 71,200 |
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Total | $ | 127,120 |
| Long-term debt | $ | 142,000 |
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Fixed assets |
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| Owners equity |
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Net plant and equipment | $ | 363,000 |
| Common stock and paid-in surplus | $ | 128,000 |
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| Retained earnings |
| 148,920 |
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| Total | $ | 276,920 |
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Total assets | $ | 490,120 |
| Total liabilities and owners equity | $ | 490,120 |
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1. The firm is operating at its full capacity, and it will have to increase its fixed assets as it increases its current assets. What is the additional funding requirement for the next year based on the first step?
2. If the entire needs are funded by a 3% bank loan, what should be the size of the loan?
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