The 2017 financial statements for Growth Industries are presented below. Sales a
ID: 2805302 • Letter: T
Question
The 2017 financial statements for Growth Industries are presented below.
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 0.60.
What is the required external financing over the next year? (Negative amounts should be indicated by a minus sign.) Not (-27,600) or 44,160!
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INCOME STATEMENT, 2017 Sales $ 250,000 Costs 175,000 EBIT $ 75,000 Interest expense 15,000 Taxable income $ 60,000 Taxes (at 35%) 21,000 Net income $ 39,000 Dividends $ 23,400 Addition to retained earnings 15,600Explanation / Answer
Answer:
The required additional external financing is: $76,000.
Assumption:
1. Plant Capacity is considered @ 70%.
2. The entire fixed asset purchase is through debt financing.
3. Cash and Cash Equivalents shall change as the depreciation shall change.
The 2017 financial statements for Growth Industries are presented below. INCOME STATEMENT, 2017 2018 2019 2020 2021 Sales $ 250,000 350000 490000 686000 960400 Costs 175,000 245000 343000 480200 672280 EBIT $ 75,000 105000 147000 205800 288120 Interest expense 15,000 22600 33240 48136 68990 Taxable income $ 60,000 82400 113760 157664 219129.6 Taxes (at 35%) 21,000 35% 28840 39816 55182.4 76695.36 Net income $ 39,000 Net Income 53560 73944 102482 142434 Dividends $ 23,400 Dividend 60% 32136 44366 61489 85461 Addition to retained earnings 15,600 Retained Earnings 21424 29578 40993 56974Related Questions
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