Question

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2021 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.

RETRO MACHINE, INC. 2020 Income Statement
Sales				$	748,000
Costs					583,000
Other expenses					19,000
Earnings before interest and taxes				$	146,000
Interest paid					15,000
Taxable income				$	131,000
Taxes (25%)					32,750
Net income				$	98,250
Dividends	$	29,475
Addition to retained earnings		68,775

RETRO MACHINE, INC. Balance Sheet as of December 31, 2020
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	20,740		Accounts payable	$	54,900
Accounts receivable		43,680		Notes payable		14,100
Inventory		92,960		Total	$	69,000
Total	$	157,380		Long-term debt	$	131,000
Fixed assets				Owners’ equity
Net plant and equipment	$	424,000		Common stock and paid-in surplus	$	115,000
				Retained earnings		266,380
				Total	$	381,380
Total assets	$	581,380		Total liabilities and owners’ equity	$	581,380

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

Answer 1