70.2K

Verified Solution

Link Copied!

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.

a. What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)

Answer & Explanation Solved by verified expert

See Answer