The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 310,000 Costs 205,000 EBIT $ 105,000 Interest expense 21,000 Taxable income $ 84,000 Taxes (at 21%) 17,640 Net income $ 66,360 Dividends $ 26,544 Addition to retained earnings $ 39,816 BALANCE SHEET, YEAR-END, 2019 Assets Liabilities Current assets Current liabilities Cash $ 7,000 Accounts payable $ 14,000 Accounts receivable 12,000 Total current liabilities $ 14,000 Inventories 31,000 Long-term debt 210,000 Total current assets $ 50,000 Stockholders’ equity Net plant and equipment 250,000 Common stock plus additional paid-in capital 15,000 Retained earnings 61,000 Total assets $ 300,000 Total liabilities plus stockholders' equity $ 300,000 Sales and costs are projected to grow at 40% 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 70% 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 0.40. What is the required external financing over the next year? Note: Enter excess cash as a negative number with a minus sign.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter3: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 19SP

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The 2019 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2019
Sales		$ 310,000
Costs		205,000
EBIT		$ 105,000
Interest expense		21,000
Taxable income		$ 84,000
Taxes (at 21%)		17,640
Net income		$ 66,360
Dividends	$ 26,544
Addition to retained earnings	$ 39,816

BALANCE SHEET, YEAR-END, 2019
Assets		Liabilities
Current assets		Current liabilities
Cash	$ 7,000	Accounts payable	$ 14,000
Accounts receivable	12,000	Total current liabilities	$ 14,000
Inventories	31,000	Long-term debt	210,000
Total current assets	$ 50,000	Stockholders’ equity
Net plant and equipment	250,000	Common stock plus additional paid-in capital	15,000
		Retained earnings	61,000
Total assets	$ 300,000	Total liabilities plus stockholders' equity	$ 300,000

Sales and costs are projected to grow at 40% 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 70% 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 0.40.

What is the required external financing over the next year?

Note: Enter excess cash as a negative number with a minus sign.

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