The 2017 financial statements for Growth Industries
Question
1. The 2017 financial statements for Growth Industries are presented
below.
INCOME STATEMENT, 2017
Sales $250,000
Costs 175,000
EBIT $75,000
Interest expense 15,000
Taxable income $60,000
Taxes (at 35%) 21,000
Net income $39,000
Dividends $23,400
Addition to retained earnings 15,600
BALANCE SHEET, YEAR-END, 2017
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 150,000
Total current assets $50,000 Stockholders’ equity
Net plant and equipment 190,000 Common stock plus additional paid-in capital 15,000
Retained earnings 60,000
Total assets $240,000 Total liabilities and stockholders’ equity $240,000
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 0.60.
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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