Problem 4-24 Calculating EFN [LO2] The most recent financial statements for Fleu

Question

Problem 4-24 Calculating EFN [LO2]

The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 25 percent growth rate in sales? (Do not round intermediate calculations.)

The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 25 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

Explanation / Answer

FLEURY, INC. Income Statement   Sales $951,250   Costs $745,000   Other expenses $ 21,250   Earnings before interest and taxes $185,000   Interest paid $ 18,000   Taxable income $167,000   Taxes (20%) $ 33,400   Net income $133,600   Dividends $ 26,720   Addition to retained earnings $106,880 Balance Sheet Assets Liabilities and Owners’ Equity   Current assets   Current liabilities     Cash $ 27,550     Accounts payable $ 70,250     Accounts receivable $ 42,950     Notes payable $ 15,400     Inventory $ 89,150       Total $ 85,650       Total $159,650   Long-term debt $144,000   Fixed assets   Owners’ equity     Net plant and equipment $562,500     Common stock and paid-in surplus $130,000     Retained earnings $339,000       Total $469,000   Total assets $722,150   Total liabilities and owners’ equity $698,650 EFN $   23,500

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