60.1K

Verified Solution

Link Copied!

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2021 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.

RETRO MACHINE, INC. 2020 Income Statement
Sales				$	754,000
Costs					589,000
Other expenses					25,000
Earnings before interest and taxes				$	140,000
Interest paid					21,000
Taxable income				$	119,000
Taxes (21%)					24,990
Net income				$	94,010
Dividends	$	28,203
Addition to retained earnings		65,807

RETRO MACHINE, INC. Balance Sheet as of December 31, 2020
Assets				Liabilities and Owners Equity
Current assets				Current liabilities
Cash	$	21,340		Accounts payable	$	55,500
Accounts receivable		44,280		Notes payable		14,700
Inventory		98,960		Total	$	70,200
Total	$	164,580		Long-term debt	$	137,000
Fixed assets				Owners equity
Net plant and equipment	$	430,000		Common stock and paid-in surplus	$	118,000
				Retained earnings		269,380
				Total	$	387,380
Total assets	$	594,580		Total liabilities and owners equity	$	594,580

If the firm is operating at full capacity and no new debt or equity is issued, what is the external financing needed to support the 25 percent growth rate in sales?

Answer & Explanation Solved by verified expert

See Answer