The 2019 financial statements for Growth Industries are presented below.   INCOME STATEMENT, 2019 Sales       $ 390,000   Costs         245,000   EBIT       $ 145,000   Interest expense         29,000   Taxable income       $ 116,000   Taxes (at 21%)         24,360   Net income       $ 91,640   Dividends $ 36,656         Addition to retained earnings $ 54,984              BALANCE SHEET, YEAR-END, 2019   Assets         Liabilities       Current assets         Current liabilities       Cash $ 8,000     Accounts payable $ 15,000   Accounts receivable   13,000     Total current liabilities $ 15,000   Inventories   29,000     Long-term debt   290,000   Total current assets $ 50,000     Stockholders’ equity       Net plant and equipment   330,000     Common stock plus additional paid-in capital   15,000             Retained earnings   60,000   Total assets $ 380,000     Total liabilities plus stockholders' equity $ 380,000        Sales and costs are projected to grow at 30% 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 0.40.   What is the required external financing over the next year?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The 2019 financial statements for Growth Industries are presented below.

 

INCOME STATEMENT, 2019
Sales       $ 390,000  
Costs         245,000  
EBIT       $ 145,000  
Interest expense         29,000  
Taxable income       $ 116,000  
Taxes (at 21%)         24,360  
Net income       $ 91,640  
Dividends $ 36,656        
Addition to retained earnings $ 54,984        
 

  

BALANCE SHEET, YEAR-END, 2019  
Assets         Liabilities      
Current assets         Current liabilities      
Cash $ 8,000     Accounts payable $ 15,000  
Accounts receivable   13,000     Total current liabilities $ 15,000  
Inventories   29,000     Long-term debt   290,000  
Total current assets $ 50,000     Stockholders’ equity      
Net plant and equipment   330,000     Common stock plus additional paid-in capital   15,000  
          Retained earnings   60,000  
Total assets $ 380,000     Total liabilities plus stockholders' equity $ 380,000  
 

  

Sales and costs are projected to grow at 30% 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 0.40.

 

What is the required external financing over the next year?

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