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Lets change capacity to 90 percent and recalculate external financing needed. We have Cromwells financial statements from this year. Income Statement Sales 1,000,000 (250,000) (180,000) 570,000 (130,000) 440,000 (132,000) 308,000 Costs Depreciation EBIT Interest expense EBT Taxes (.3) Net Income Dividends 231,000 Additions to Retained Earnings 77,000

Balance Sheet Cash 70,000 Accounts pay 60,000 Accounts rec 30,000 Notes payable 25,000 Inventory 80,000 Current Liab 85,000 Current Assets 180,000 Long-term debt 250,000 Fixed Assets 750,000 Owners Equity Common stock 90,000 505,000 595,000 Retained earnings Total OE Total Assets 930,000 Total Liab & OE 930,000 Costs, current assets, and current liabilities are proportional to sales. Interest expense and depreciation will remain constant. The tax rate and dividend payout rate will remain constant. The firm is operating at 90 percent capacity and expects sales to rise by 20 percent. What is the external financing needed?

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E17 Income Statement ASSETS AMOUNT LIABILITIES & SHAREHOLDERS EQUITY AMOUNT $1,200,000 $ 480,000 $ 720,000 $ 130,000 $ 590,000 $ 177,000 $ 413,000 $ 309,750 Retained Earnings$ 103,250 Sales CURRENT ASSETS: Cash Account Receivable Invento LIABILITIES: 3 Less: Costs 4 5 Less: Interest $84,000 Account Payable S36,000 Notes Payable $ 96,000 $ 72,000 $ 30,000 EBIT EBT $ 102,000 $ 250,000 Total 7 Less: Tax@ 30% Total FIXED ASSETS Net plant and equipment $750,000 SHAREHOLDERS EQUITY $216,000 Long Term Debt Net income 9 Less: Dividends $ 90,000 $ 608,250 $ 698,250 $966,000 TOTAL OF LIABILITES & SAHREHOLDERS EQUITY $1,050,250 Common Shareholders Equi Accumulated Retained Earnings Total 12 13 TOTAL OF ASSETS 15 Full capacity ratio 0.675-750000/(1000000/90% 17 External financing is needed (EFN)-$24,250

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