The most recent financial statements for Fleury Inc., follow. Sales for 2012 are
ID: 2626068 • Letter: T
Question
The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 25 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. 2011 Income Statement Sales $ 763,000 Costs 598,000 Other expenses 19,000 Earnings before interest and taxes $ 146,000 Interest paid 10,000 Taxable income $ 136,000 Taxes (20%) 27,200 Net income 108,800 Dividends $ 21,760 Addition to retained earnings 87,040 FLEURY, INC. Balance Sheet as of December 31, 2011 Assets Liabilities and Owners Equity Current assets Current liabilities Cash $ 22,240 Accounts payable $ 56,400 Accounts receivable 34,560 Notes payable 15,600 Inventory 71,520 Total $ 72,000 Total $ 128,320 Long-term debt $ 146,000 Fixed assets Owners equity Net plant and equipment $ 420,000 Common stock and paid-in surplus $ 132,000 Retained earnings 198,320 Total $ 330,320 Total assets $ 548,320 Total liabilities and owners equity $ 548,320 If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the 25 percent growth rate in sales? (Do not round intermediate calculations.) EFN $
Explanation / Answer
What external financing is needed to support the 25 percent growth rate in sales
Total Fund Needed = (Fixed Asset + current Asset - Accounts payable)*25%
Total Fund Needed = (420000+128320 - 56400)*25%
Total Fund Needed = $ 122,980
Dividend payout ratio = 21760/108800 = 20%
Income Statement for 2012
Sales = $ 763,000*125% = 953750
Costs = 598,000 *125% = 747500
Other expenses = 19,000 *125% = 23750
Earnings before interest and taxes $ 182500
Interest paid 10,000
Taxable income $ 172500
Taxes (20%) $ 34500
Net income 138000
Dividends (Payout 20%) $ 27600
Addition to retained earnings $ 110400
Total Fund raised through internally = 110400
External financing is needed to support the 25 percent growth rate in sales = 122980-110400
External financing is needed to support the 25 percent growth rate in sales = $ 12580
Answer:
External financing Needed = $ 12580