Question

The most recent financial statements for Scott, Inc., appear below. Sales for 2020 are projected to grow by 30 percent. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

SCOTT, INC. 2019 Income Statement
Sales				$	752,000
Costs					587,000
Other expenses					23,000
Earnings before interest and taxes				$	142,000
Interest expense					19,000
Taxable income				$	123,000
Taxes (24%)					29,520
Net income				$	93,480
Dividends	$	28,044
Addition to retained earnings		65,436

SCOTT, INC. Balance Sheet as of December 31, 2019
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	21,140		Accounts payable	$	55,300
Accounts receivable		44,080		Notes payable		14,500
Inventory		96,960		Total	$	69,800
Total	$	162,180		Long-term debt	$	135,000
Fixed assets				Owners’ equity
Net plant and equipment	$	428,000		Common stock and paid-in surplus	$	117,000
				Retained earnings		268,380
				Total	$	385,380
Total assets	$	590,180		Total liabilities and owners’ equity	$	590,180

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 30 percent growth rate in sales? (Do not round intermediate calculations.)

Answer 1