The 2017 financial statements for Growth Industries are presented below.
INCOME STATEMENT, 2017 | |||||||
Sales | $ | 210,000 | |||||
Costs | 155,000 | ||||||
EBIT | $ | 55,000 | |||||
Interest expense | 11,000 | ||||||
Taxable income | $ | 44,000 | |||||
Taxes (at 35%) | 15,400 | ||||||
Net income | $ | 28,600 | |||||
Dividends | $ | 14,300 | |||||
Addition to retained earnings | 14,300 | ||||||
BALANCE SHEET, YEAR-END, 2017 | |||||||||
Assets | Liabilities | ||||||||
Current assets | Current liabilities | ||||||||
Cash | $ | 4,000 | Accounts payable | $ | 11,000 | ||||
Accounts receivable | 9,000 | Total current liabilities | $ | 11,000 | |||||
Inventories | 27,000 | Long-term debt | 110,000 | ||||||
Total current assets | $ | 40,000 | Stockholders’ equity | ||||||
Net plant and equipment | 150,000 | Common stock plus additional paid-in capital | 15,000 | ||||||
Retained earnings | 54,000 | ||||||||
Total assets | $ | 190,000 | Total liabilities and stockholders' equity | $ | 190,000 | ||||
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 firm is 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 0.50.
What is the required external financing over the next year?
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