Question

The most recent financial statements for Fleury Inc., follow. Sales for next year are projected to...

The most recent financial statements for Fleury Inc., follow. Sales for next year are projected to grow by 22 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets and accounts payable increase spontaneously with sales.

FLEURY, INC.
Income Statement
Sales $ 572,274
Costs 504,110
Other expenses 16,373
Earnings before interest and taxes $ ?
Interest paid 13,013
Taxable income $ ?
Taxes (30%) ?
Net income ?
Dividends $ 6,512
FLEURY, INC.
Balance Sheet
Assets Liabilities and Owners’ Equity
Current assets Current liabilities
Cash $ 20,442    Accounts payable $ 50,825
Accounts receivable 37,505    Notes payable 15,612
Inventory 71,739
Long-term debt $ 107,612
Fixed assets
Net plant and equipment $ 409,239 Owners’ equity
   Common stock and paid-in surplus $ 124,119
   Retained earnings ?

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 22 percent growth rate in sales?

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Answer #1
FLEURY, INC.
Income Statement
Sales            572,274
Less: Costs            504,110
Less: Other expenses              16,373
Earnings before interest and taxes              51,791
Less: Interest paid              13,013
Taxable income              51,791
Less: Taxes (30%)              15,537
Net income              36,254
Dividends                 6,512
dividend payout rate (6512/36254) 17.9621559%
FLEURY, INC.
Balance Sheet
Assets Liabilities and Owners’ Equity
Current assets Current liabilities
Cash 20,442 Accounts payable 50,825
Accounts receivable 37,505 Notes payable 15,612
Inventory 71,739 Long-term debt 107,612
Total current assets 129,686 Owners’ equity
Fixed assets Common stock and paid-in surplus 124,119
Net plant and equipment 409,239

Retained earnings (Balancing figure)

(538925-(50825+15612+107612+124119))

                 240,757
Total assets 538,925 Total Liabilities and Owners’ Equity 538,925
FLEURY, INC. (22% growth = 1+ 22% = 1.22)
Expected Income Statement (for next year)
Sales (572274*1.22)            698,174
Less: Costs (504110*1.22)            615,014
Less: Other expenses (16373*1.22)              19,975
Earnings before interest and taxes              63,185
Less: Interest paid (same as last year)              13,013
Taxable income              63,185
Less: Taxes (30%) (63185*30%)              18,956
Net income              44,230
Multiply: dividend payout rate 17.9621559%
Dividend paid                 7,945
Increase in retained earnings (44230-7945)              36,285
Increase in current assets (129686*22%)              28,531
Increase in fixed assets (409239*22%)              90,033
Increase in total assets            118,564
Less: increase in accounts payable (50825*22%)              11,182
Total financing required            107,382
Less: Increase in retained earnings              36,285
External financing needed              71,097
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