Question

Check 1 The 2017 financial statements for Growth Industries are presented below INCOME STATEMENT, 2017 Sales 250,000 175,000 7.33 Costs points 75,000 15,000 $60,000 21,000 39,000 $ ЕBIT Interest expense Taxable income Taxes (at 35) Net income Dividends еВook 23,400 15,600 Addition to retained earnings Print BALANCE SHEET, YEAR-END, 2017 Liabilities Assets Current assets Current liabilities $ 15,000 $ 15,000 Cash 8,000 13,000 29,000 $ 50,000 190,000 Accounts payable Accounts receivable Inventories Total current liabilities Long-term debt Stockholders' equity Common stock plus additional paid-in capital Retained earnings 150,000 Total current assets Net plant and equipment 15,000 60,000 $ 240,000 240,000 Total assets Total liabilities and stockholders' equity Sales and costs are projected to grow at 40% a year for at least the next 4 years. Both current assets and accounts payable are projected to rise in proportion to sales. The firm is currently operating at 70% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.60. What is the required external financing over the next year? (Enter excess cash as a negative number with a minus sign.) External financing

Answer 1

Pro forma income statement Sales 350000 Costs 245000 EBIT 105000 Interest expense 15000 Taxable income 90000 Tax 31500 Net income 58500 Dividends 35100 Addition to retained earnings 23400 Calculation of External financing needed: Increase in current assets 20000 Less: Increase in accounts payables 6000 Total fund needed 14000 Less: addition to retained earnings 23400 External financing needed -9400

EXCEL FORMULA:

Pro forma income statement Sales =250000*(1+40%) Costs =175000*(1+40%) EBIT =C3-C4 Interest expense =150000*10% Taxable income =C5-C6 Tax =C7*35% Net income =C7-C8 Dividends =C9*0.6 Addition to retained earnings =C9-C10 Calculation of External financing needed: Increase in current assets Less: Increase in accounts payables Total fund needed Less: addition to retained earnings External financing needed =50000* 40% 1=15000* 40% =C14-C15 =C11 =C16-C17