The 2017 financial statements for Growth Industries are presented below INCOME S

Question

The 2017 financial statements for Growth Industries are presented below INCOME STATEMENT, 2017 Sales Costs EBIT Interest expense Taxable income Taxes (at 35%) Net income $310,000 205,000 $ 105,000 21,000 $ 84,000 29,400 $ 54,600 Dividends Addition to retained earnings S 21,840 32, 760 BALANCE SHEET, YEAR-END, 2017 Assets Liabilities Current assets Current liabilities Cash Accounts receivable Inventories $7,000 12,000 31,000 Accounts payable Total current liabilities $ 14,000 $ 14,000 210,000 Long-term debt Total current assets $ 50,000 Stockholders' equity Net plant and equipment Common stock plus additional paid-in capital Retained earnings 15,000 61,000 $ 300,000 250,000 Total assets $ 300,000 Total liabilities and stockholders' equity 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 O.40 What is the required external financing over the next year? (Negative amounts should be indicated by a minus sign.) External financing

Explanation / Answer

Projected Income statement

Projected Balance sheet

Particulars 2017 2018 2019 2020 2021 Sales 310000 434000 607600 850640 1190896 Cost 205000 287000 401800 562520 787528 % of sales 66% 66% 66% 66% 66% EBIT 105000 147000 205800 288120 403368 Interest 21000 21000 27526 36589.31 49202.02 Taxable income 84000 126000 178274 251531 354166 Tax @35% 29400 44100 62396 88036 123958 Net income 54600 81900 115878 163495 230208 Dividend 21840 32760 46351 65398 92083 Addition to reserve 32760 49140 69527 98097 138125

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