The 2017 financial statements for Growth Industries are presented below. 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 full 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 .40. Construct a spreadsheet model for Growth Industries similar to the one in Spreadsheet 18.1.

a. How much external capital will the company require in 2021?

b. What will be the company's debt ratio at the end of 2021?

Income Statement, 2017

Sales ........................................................... $200,000

Costs ............................................................ 150,000

EBIT ........................................................... $ 50,000

Interest expense ................................................. 10,000

Taxable income .............................................. $ 40,000

Taxes (at 35%) ................................................. 14,000

Net income ................................................... $ 26,000

Dividends .............................. $10,400 .......................

Addition to retained earnings ........ $15,600 .......................

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BALANCE SHEET, YEAR-END, 2017 Assets Liabilities Current assets Current llabilltles Cash Accounts recelvable Inventories $ 3,000 8,000 Accounts payable Total current llabilitles $ 10,000 $ 10,000 100,000 000 Long-term debt $40,000 Stockholders' equlty 29, Total current assets Common stock plus additional pald-In capltal Retalned earnings Net plant and equipment 160,000 15,000 75,000 Total llablities plus Total assets $200,000 stockholders' equlty $200,000