Question

The 2017 financial statements for Growth Industries are presented below. Sales and costs are projected to...

The 2017 financial statements for Growth Industries are presented below.

Sales and costs are projected to grow at 30% 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? (Enter excess cash as a negative number with a minus sign.)

INCOME STATEMENT, 2017
Sales $ 240,000
Costs 170,000
EBIT $ 70,000
Interest expense 14,000
Taxable income $ 56,000
Taxes (at 35%) 19,600
Net income $ 36,400
Dividends $ 18,200
Addition to retained earnings 18,200

  

BALANCE SHEET, YEAR-END, 2017
Assets Liabilities
Current assets Current liabilities
Cash $ 7,000 Accounts payable $ 14,000
Accounts receivable 12,000 Total current liabilities $ 14,000
Inventories 21,000 Long-term debt 140,000
Total current assets $ 40,000 Stockholders’ equity
Net plant and equipment 180,000 Common stock plus additional paid-in capital 15,000
Retained earnings 51,000

Total assets

$ 220,000 Total liabilities and stockholders' equity $ 220,000

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