Question

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 90 percent capacity Income Statement Last Year Sales 700,000 385,000 182,000 133,000 84,000 49,000 12,250 36,750 Costs of goods sold Selling and admin. expense Earnings before interest & taxes Interest expense Earnings before taxes Balance Sheet Taxes Assets Liabilities and Owners' Net income Equity Dividends 22,050 Cash 42,000 Accounts 35,000 Additions to retained earnings 14,700 payable Accounts receivable 112,000 Notes 98,000 payable Accrued taxes payable Inventory 168,000 21,000

Answer 1

In order to calculate the external financing needed, first prepare the income statement and balance sheet with 15% increase:

External financing needed is $9,327 ($847,000 - $837,673).