The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 270,000 Costs 185,000 EBIT $ 85,000 Interest expense 17,000 Taxable income $ 68,000 Taxes (at 21%) 14,280 Net income $ 53,720 Dividends $ 21,488 Addition to retained earnings $ 32,232 BALANCE SHEET, YEAR-END, 2019 Assets Liabilities Current assets Current liabilities Cash $ 3,000 Accounts payable $ 10,000 Accounts receivable 8,000 Total current liabilities $ 10,000 Inventories 29,000 Long-term debt 170,000 Total current assets $ 40,000 Stockholders’ equity Net plant and equipment 210,000 Common stock plus additional paid-in capital 15,000 Retained earnings 55,000 Total assets $ 250,000 Total liabilities plus stockholders' equity $ 250,000 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The 2019 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2019
Sales			$	270,000
Costs				185,000
EBIT			$	85,000
Interest expense				17,000
Taxable income			$	68,000
Taxes (at 21%)				14,280
Net income			$	53,720
Dividends	$	21,488
Addition to retained earnings	$	32,232

BALANCE SHEET, YEAR-END, 2019
Assets			Liabilities
Current assets			Current liabilities
Cash	$	3,000	Accounts payable	$	10,000
Accounts receivable		8,000	Total current liabilities	$	10,000
Inventories		29,000	Long-term debt		170,000
Total current assets	$	40,000	Stockholders’ equity
Net plant and equipment		210,000	Common stock plus additional paid-in capital		15,000
			Retained earnings		55,000
Total assets	$	250,000	Total liabilities plus stockholders' equity	$	250,000

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? (Enter excess cash as a negative number with a minus sign.)

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