Question

1. Compute the external financing needed to support the projected annual sales growth.

The most recent financial statements for Fleury, Inc., follow. Sales for 2012 are projected to grow by 20%. Interest expense will remain constant. The tax rate and the dividend payout rate will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 20 percent growth rate in sales?

Sales: $743,000

Costs: $578,000

Other Expenses: $15,200

EBIT: $149,800

Interest Expense $11,200

Taxable Income: $138,600

Taxes: $48,510

NET INCOME: $90,090

Dividends: $27,027

Add. To Retained Value: $63,063

Sales Increase: 20%

Tax Rate: 35%

*ASSETS*

Current Assets

               Cash: $20,240

               Accounts Receivable $32,560

               Inventory: $69,520

TOTAL: $122,320

Fixed Assets

               Net Plant and Equipment $$330,400

TOTAL ASSETS: $$452,720

*LIABILITIES AND OWNERS EQUITY*

Current Liabilities

               Accounts Payable $54,400

               Notes Payable $13,600

TOTAL: $68,000

Long-Term Debt $126,000

Owner’s Equity

               Common Stocks and Paid-In Surplus $112,000

               Retained Earnings $146,720

TOTAL: $258,720

Total Liability’s And Owner’s Equity: $452,720

Complete the following analysis. Do not hard code values in your answer. Use formulas.

Dividend payout ratio Assets 2012 Pro Forma Income Statement Liabilities and owners' equity Current liabilities Sales Costs Other expenses EBIT Current assets Cash Accounts receivable Inventory Total Accounts payable Notes payable Total Interest expense Taxable income Fixed assets Long-term debt Taxes Net plant and equipment Net income Owners' equity Common stock and Dividends paid-in surplus Retained earnings Total Total liabilities and Add. To RE Total assets owners' equity External financing

Answer 1

Working as follows: Compute Dividend payout ratio: Dividend paid Dividendpayout ratio== Net Income $27.027 90.090 = 30% Sales (S743,000 x 120%) Less: Costs ($578.000 x 120%) Less: Other Expenses ($15,200 x 120%) EBIT Less: Interest expense (Constant) Taxable Income Less: Taxes ($168,560 x 35%) Net Income $891,600 $693.600 $18.240 $179,760 $11,200 $168.560 $58,996 $109,564 Dividend ($109,564 x 30%) Retained Earnings ($109,564 - 32.869) $32.869 $76,695

Current Assets: Cash ($20.420 x 120%) Accounts receivable ($32,560 120%) Inventory (569,520 x 120%) Total Fixed Assets Net PPE ($330,400 x 120%) $24,504 $39,072 $83,424 $147,000 $396,480 Total Assets $543,480 Total Equity would be = $258.720 + Additions to retained earnings =$258.720 + $76,695 =$335,415 Current liabilities Accounts payable ($54,400 x 120%) Notes payable Total $65.280 $13.600 $78,880 Long-term debt Total Liabilities $126.000 S204,880

Equation as follows: External Financing needed=Total assets -(Total Equity + Total liabilities) =$543,480-($335,415+$204,880) = $3185