Chapter 18 3 The 2017 financial statements for Growth Industries are presented b

Question

Chapter 18 3 The 2017 financial statements for Growth Industries are presented below INCOME STATEMENT, 2817 7.34 points Sales Costs EBIT Interest expense Taxable incone Taxes (at 35%) Net incom s 35e,eee 225,000 125,eee % lee 5,906 65,800 Book Dividends Addition to retained earnings 5 26,990 39.000 Pein Liabiities Current assets Current liabilities Cash Accounts receivable Inventories 54,0ee 9,800 Accounts payable Total eurrent 11abilities 13,00e 250,000 227:090Long-tere debt Total current assets 40,900 Stockholders equity Net plant and equsprent Conmon stock plus addstional paid-in capital 15,000 4.800 Retained earnings Total assets 338,8ee Total liabilities and stockholders' equity 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 fimm ts 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 extemal financing over the next year? (Negetive amounts should be indicated by a minus sign.) External financing

Explanation / Answer

Financials for 2018

EBIT(125000*1.20). 150000$

Less: Interest exp. (25000)

Taxable income . 125000$

Less: taxes @35%. (43750)

Net income. 81250$

Dividends(0.4 of net income) = 32500$

Retained earnings. 48750$

Current assets (as a % of sales)= 48000$

Net plant and equipment = 240000$

Total assets= 288000 $

Current liabilities = 13200$

Long term debt (balancing figure) = 157050$

Shareholders equity.(15000+54000+48750)= 117750$

Total of liabilities = 288000$

External financing is not required = 250000- 157050= 92950$ can be repaid from long term debt.

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