Question Completion:
The 2017 financial statements for Growth Industries are presented below
INCOME STATEMENT, 2017
Sales $ 380,000
Costs 240,000
EBIT $ 140,000
Interest expense 28,000
Taxable income $ 112,000
Taxes (at 35%) 39,200
Net income $ 72,800
Dividends 21,840
Addition to retained earnings 50,960
BALANCE SHEET, YEAR -END, 2017
Assets
Current assets
Cash $ 7,000
Accounts receivable 12,000
Inventories 31,000
Total current assets $ 50,000
Net plant and equipment 320,000
Total assets $ 370,000
Liabilities
Current liabilities
Accounts payable $ 14,000
Total current liabilities $14,000
Long-term debt Stockholders' equity 280,000
Common stock plus additional paid-in capital 15,000
Retained earnings 61,000
Total liabilities and stockholders' equity $ 370,000
Answer:
Growth Industries
The required external financing over the next year is:
= $16,600.
Explanation:
a) Data and Calculations:
Sales and costs projected growth rates = 20%
Current assets and accounts payable growth rates = 20%
Fixed assets growth rates = 20%
Interest expense = 10% of long-term debt outstanding
Dividend payout ratio = 0.40
INCOME STATEMENTs, 2017 Projected
Sales $ 380,000 $456,000 ($380,000 * 1.2)
Costs 240,000 288,000 ($240,000 * 1.2)
EBIT $ 140,000 $168,000
Interest expense 28,000 28,000
Taxable income $ 112,000 $140,000
Taxes (at 35%) 39,200 49,000
Net income $ 72,800 $91,000
Dividends 21,840 36,400
Addition to retained earnings 50,960 $54,600
Retained earnings, 2017 $61,000
Projected addition 54,600
Retained earnings, $115,600
BALANCE SHEET, YEAR -END, 2017
Assets 2017 Projected
Current assets
Cash $ 7,000 $8,400 ($7,000*1.2)
Accounts receivable 12,000 14,400 (12,000*1.2)
Inventories 31,000 37,200 (31,000*1.2)
Total current assets $ 50,000 $60,000
Net plant and equipment 320,000 384,000 ($320,000*1.2)
Total assets $ 370,000 $ 444,000
Liabilities
Current liabilities
Accounts payable $ 14,000 $16,800 ($14,000*1.2)
Total current liabilities $14,000 $16,800
Long-term debt Stockholders' equity 280,000 280,000
Common stock plus
additional paid-in capital 15,000 15,000
Retained earnings 61,000 115,600
Total liabilities
and stockholders' equity $ 370,000 $427,400
External Financing Required = Assets - Liabilities & equity
Assets = $444,000
Liabilities + Equity = $427,400
External financing $16,600
