The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 360,000 Costs 230,000 EBIT $ 130,000 Interest expense 26,000 Taxable income $ 104,000 Taxes (at 21%) 21,840 Net income $ 82,160 Dividends $ 41,080 Addition to retained earnings $ 41,080 BALANCE SHEET, YEAR-END, 2019 Assets Liabilities Current assets Current liabilities Cash $ 5,000 Accounts payable $ 12,000 Accounts receivable 10,000 Total current liabilities $ 12,000 Inventories 35,000 Long-term debt 260,000 Total current assets $ 50,000 Stockholders’ equity Net plant and equipment 300,000 Common stock plus additional paid-in capital 15,000 Retained earnings 63,000 Total assets $ 350,000 Total liabilities plus stockholders' equity $ 350,000 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 0.50. What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)
The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 360,000 Costs 230,000 EBIT $ 130,000 Interest expense 26,000 Taxable income $ 104,000 Taxes (at 21%) 21,840 Net income $ 82,160 Dividends $ 41,080 Addition to retained earnings $ 41,080 BALANCE SHEET, YEAR-END, 2019 Assets Liabilities Current assets Current liabilities Cash $ 5,000 Accounts payable $ 12,000 Accounts receivable 10,000 Total current liabilities $ 12,000 Inventories 35,000 Long-term debt 260,000 Total current assets $ 50,000 Stockholders’ equity Net plant and equipment 300,000 Common stock plus additional paid-in capital 15,000 Retained earnings 63,000 Total assets $ 350,000 Total liabilities plus stockholders' equity $ 350,000 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 0.50. What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The 2019 financial statements for Growth Industries are presented below.
| INCOME STATEMENT, 2019 | ||||||
| Sales | $ | 360,000 | ||||
| Costs | 230,000 | |||||
| EBIT | $ | 130,000 | ||||
| Interest expense | 26,000 | |||||
| Taxable income | $ | 104,000 | ||||
| Taxes (at 21%) | 21,840 | |||||
| Net income | $ | 82,160 | ||||
| Dividends | $ | 41,080 | ||||
| Addition to |
$ | 41,080 | ||||
| BALANCE SHEET, YEAR-END, 2019 | ||||||||
| Assets | Liabilities | |||||||
| Current assets | Current liabilities | |||||||
| Cash | $ | 5,000 | Accounts payable | $ | 12,000 | |||
| 10,000 | Total current liabilities | $ | 12,000 | |||||
| Inventories | 35,000 | Long-term debt | 260,000 | |||||
| Total current assets | $ | 50,000 | ||||||
| Net plant and equipment | 300,000 | Common stock plus additional paid-in capital | 15,000 | |||||
| Retained earnings | 63,000 | |||||||
| Total assets | $ | 350,000 | Total liabilities plus stockholders' equity | $ | 350,000 | |||
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 0.50.
What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)
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