The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 30 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. |
CROSBY, INC. 2017 Income Statement |
||||||
Sales | $ | 749,000 | ||||
Costs | 584,000 | |||||
Other expenses | 20,000 | |||||
Earnings before interest and taxes | $ | 145,000 | ||||
Interest paid | 16,000 | |||||
Taxable income | $ | 129,000 | ||||
Taxes (21%) | 27,090 | |||||
Net income | $ | 101,910 | ||||
Dividends | $ | 31,592 | ||||
Addition to retained earnings | 70,318 | |||||
CROSBY, INC. Balance Sheet as of December 31, 2017 |
|||||||
Assets | Liabilities and Owners’ Equity | ||||||
Current assets | Current liabilities | ||||||
Cash | $ | 20,840 | Accounts payable | $ | 55,000 | ||
Accounts receivable | 43,780 | Notes payable | 14,200 | ||||
Inventory | 93,960 | Total | $ | 69,200 | |||
Total | $ | 158,580 | Long-term debt | $ | 132,000 | ||
Fixed assets | Owners’ equity | ||||||
Net plant and equipment | $ | 425,000 | Common stock and paid-in surplus | $ | 115,500 | ||
Retained earnings | 266,880 | ||||||
Total | $ | 382,380 | |||||
Total assets | $ | 583,580 | Total liabilities and owners’ equity | $ | 583,580 | ||
If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 30 percent growth rate in sales? |
CROSBY,
INC. 2018 Income Statement |
|
Sales [749000(1+.30)] | 973700 |
cost [584000(1+.30)] | -759200 |
Other expense [20000(1+.30)] | -26000 |
Earnings before interest and taxes | 188500 |
less:Interest | -16000 |
Taxable income | 172500 |
Tax [172500*.21] | -36225 |
net income | 136275 |
Dividend [136275*31%] | 42245 |
Addition to retained earning | 94030 |
**Dividend payout ratio for 2017= 31592/101910= 31% rounded
Step 2)
Total asset for 2018 =Total asset for 2017 (1+% increase in sales)
= 583580(1+.30)
= 758654
step 3)Liabilities for 2018
Accounts payable [55000(1+.30)] | 71500 |
Notes payable | 14200 |
Long-term debt | 132000 |
Total liabilities | 217700 |
Step 4)
Owners equity for 2018 without EFN = common stock+Retained earning
=115500 + (266880+94030)
= 115500 + 360910
= 476410
STEP 5)
External financing needed =Total asset -total liabilities -total equity
= 758654-217700-476410
= 64544
The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow...
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