Question

The most recent financial statements for Scott, Inc., appear below. Sales for 2020 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

SCOTT, INC. 2019 Income Statement
Sales				$	750,000
Costs					585,000
Other expenses					21,000
Earnings before interest and taxes				$	144,000
Interest expense					17,000
Taxable income				$	127,000
Taxes (22%)					27,940
Net income				$	99,060
Dividends	$	29,718
Addition to retained earnings		69,342

SCOTT, INC. Balance Sheet as of December 31, 2019
Assets				Liabilities and Owners’ Equity
Current assets				Current liabilities
Cash	$	20,940		Accounts payable	$	55,100
Accounts receivable		43,880		Notes payable		14,300
Inventory		94,960		Total	$	69,400
Total	$	159,780		Long-term debt	$	133,000
Fixed assets				Owners’ equity
Net plant and equipment	$	426,000		Common stock and paid-in surplus	$	116,000
				Retained earnings		267,380
				Total	$	383,380
Total assets	$	585,780		Total liabilities and owners’ equity	$	585,780

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? (Do not round intermediate calculations.)

Answer 1

AMOUNT nm + $ 66,120 $ 14,300 E15 | X V A B 1 Income Statement Sales $ 3 Less: Costs $ 4 Less: Other expenses $ $ 6 Less: Interest $ EBT $ 8 Less: Tax @ 22% $ Net income $ 10 Less: Dividends $ Retained Earnings $ 12 EBIT fc =F13-H13 C D E F 1 I ASSETS AMOUNT LIABILITIES & SHAREHOLDER'S EQUITY 900,000 CURRENT ASSETS: LIABILITIES: 702,000 Cash $ 25,128 Account Payable 25,200 Account Receivable $ 52,656 Notes Payable 172,800 Inventory $ 113,952 17,000 Total 155,800 Total $ 191,736 Long Term Debt 34,276 FIXED ASSETS: 121,524 Net plant and equipment $ 553,800 SHAREHOLDER'S EQUITY 35,457 Common Shareholder's Equity 85,067 Accumulated Retained Earnings Total TOTAL OF ASSETS $ 745,536 TOTAL OF LIABILITES & SAHREHOLDER'S EQUITY $ 80,420 $ 133,000 7 $ 116,000 $ 352,447 $ 468,447 $ 681,867 15 External financing is needed $ 63,669

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