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.)

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			$	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.)

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