The most recent financial statements for Fleury Inc., follow. Sales for next yea

Question

The most recent financial statements for Fleury Inc., follow. Sales for next year are projected to grow by 22 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 22 percent growth rate in sales?

(Omit the "$" sign and commas in your response. Enter your answer rounded to 2 decimal places. For example, $1,200.456 should be entered as 1200.46.)

FLEURY, INC. Income Statement Sales $ 588094 Costs 503749 Other expenses 19271 Earnings before interest and taxes $ ? Interest paid 13820 Taxable income $ ? Taxes (30%) ? Net income ? Dividends $ 6147

Explanation / Answer

Step 1: Fleury Inc. Income Statement

Step 2: Fleury Inc.  Balance sheet

Step 3: Calculation of external financing needed (EFN)

We have

External Financing Needed = (A0/S0*(S1-S0)) - (L0/S0*(S1-S0)) - (PM*S1*b)

where

Ao - Assets (at time 0) which vary directly with Sales = 569752

Lo - Liabilities (at time 0) which vary directly with Sales=50410

So - Current Sales =588094

S1 - Projected Sales = 588094*1.22=717474.68

b - Retention ratio = Addition to Retained Earnings/Net Income= 29730.80/35877.80

PM - Profit Margin = Net income/Sales = 35877.80/588094

External Financing Needed = (569752/588094*(717474.68-588094)) - (50410/588094*(717474.68-588094)) - (35877.80/588094*717474.68*29730.80/35877.80)

= 125345.44-11090.2-36271.58

= 77983.66

Sales     588,094.00 Less: Cost of goods sold     503,749.00 Gross profit       84,345.00 Less: other operating expenses       19,271.00 EBIT       65,074.00 Less: Interest       13,820.00 Income Before Income Tax (EBT)       51,254.00 Less: Income Tax@30%       15,376.20 Net Income       35,877.80 Less: Dividend         6,147.00 Addition to retained earnings       29,730.80

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