The 2019 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2019Sales $340,000 Costs 220,000 EBIT $120,000 Interest expense 24,000 Taxable income $96,000 Taxes (at 21%) 20,160 Net income $75,840 Dividends$22,752 Addition to retained earnings$53,088 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 240,000 Total current assets$40,000 Stockholders’ equity Net plant and equipment 280,000 Common stock plus additional paid-in capital 15,000 Retained earnings 55,000 Total assets$320,000 Total liabilities plus stockholders' equity$320,000 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 0.30. What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.)

External finance needed refers to the additional amount that a company is required to raise from the…

Answered: What is the required external financing…

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			$	340,000
Costs				220,000
EBIT			$	120,000
Interest expense				24,000
Taxable income			$	96,000
Taxes (at 21%)				20,160
Net income			$	75,840
Dividends	$	22,752
Addition to retained earnings	$	53,088

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		240,000
Total current assets	$	40,000	Stockholders’ equity
Net plant and equipment		280,000	Common stock plus additional paid-in capital		15,000
			Retained earnings		55,000
Total assets	$	320,000	Total liabilities plus stockholders' equity	$	320,000

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 0.30.

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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