The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019 Sales $ 230,000 Costs 165,000 EBIT $ 65,000 Interest expense 13,000 Taxable income $ 52,000 Taxes (at 21%) 10,920 Net income $ 41,080 Dividends $ 16,432 Addition to retained earnings $ 24,648 BALANCE SHEET, YEAR-END, 2019 Assets Liabilities Current assets Current liabilities Cash $ 6,000 Accounts payable $ 13,000 Accounts receivable 11,000 Total current liabilities $ 13,000 Inventories 23,000 Long-term debt 130,000 Total current assets $ 40,000 Stockholders’ equity Net plant and equipment 170,000 Common stock plus additional paid-in capital 15,000 Retained earnings 52,000 Total assets $ 210,000 Total liabilities plus stockholders' equity $ 210,000 Sales and costs are projected to grow at 20% 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.)

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			$	230,000
Costs				165,000
EBIT			$	65,000
Interest expense				13,000
Taxable income			$	52,000
Taxes (at 21%)				10,920
Net income			$	41,080
Dividends	$	16,432
Addition to retained earnings	$	24,648

BALANCE SHEET, YEAR-END, 2019
Assets			Liabilities
Current assets			Current liabilities
Cash	$	6,000	Accounts payable	$	13,000
Accounts receivable		11,000	Total current liabilities	$	13,000
Inventories		23,000	Long-term debt		130,000
Total current assets	$	40,000	Stockholders’ equity
Net plant and equipment		170,000	Common stock plus additional paid-in capital		15,000
			Retained earnings		52,000
Total assets	$	210,000	Total liabilities plus stockholders' equity	$	210,000

Sales and costs are projected to grow at 20% 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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