Question

Last Year’s financial statements for Weaver Textiles are b

Last year's financial statements for Weaver Textiles are below. Sales are expected to grow by 15 percent this year. Their tax rate and dividend payout ratio will be the same in the future. Costs, selling and administration expense, current assets, accounts payable, and accrued taxes increase proportionally with sales. Interest expense, notes payable, and long-term debt will be unchanged. Weaver is operating at 95 percent capacity. Income Statement Last Year Sales 640,000 Costs of goods sold 352,000 Selling and admin. expense 166,400 Earnings before interest & taxes 121,600 Interest expense 76,800 Earnings before taxes 44,800 Taxes 13,440 Net income 31,360

Answer 1

Solution as per below Image:

Working Note 1: Income Statements Income Statement Sales Cost of goods Sold Selling and admin expense Earnings Before Interest & taxes Interest Expense Earnings Before taxes Taxes@30% Net Income Dividends Additions to retained Earnings Last year 640000 352000 166400 121600 76800 44800 13440 31360 18816 12544 Current Year 736000 404800 191360 139840 76800 63040 18912 44128 26477 17651 Dividend Payout Ratio (18816/31360)x100 Tax Rate(13440/44800)x100 60% 30% 60% 30% Working Note 2: Balance sheet and Calculation for External Financing Needed Liabilities and Owner's Assets Last Year Current Year Equity Last Year Current Year Cash Accounts Receivable Inventory Total Current Assets 38400 102400 153600 294400 44160 Accounts Payable 117760 Notes Payable 176640 Accrued Taxes Payable 338560 Total Current Liabilities 32000 89600 19200 1408001 36800 89600 22080 148480 Plant and equipment 384000 281600 281600 18829 384000 Long Term Debt External Finance ( Balancing Figure) Common Stock Retained Earnings Total Owner's Equity 102400 153600 537600 102400 171251 574080 Total Assets 678400 678400 722560 722560 Total Liabilities & Owners Equity So Weaver Textiles needed an external finance of 18829