The most recent financial statements for Fleury Inc., follow. Sales for 2012 are
ID: 2730495 • Letter: T
Question
The most recent financial statements for Fleury Inc., follow. Sales for 2012 are projected to grow by 20 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.
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?
FLEURY, INC.2011 Income Statement Sales $ 725,000 Costs 591,000 Other expenses 12,000 Earnings before interest and taxes $ 122,000 Interest paid 14,000 Taxable income $ 108,000 Taxes (50%) 54,000 Net income 54,000 Dividends $ 33,360 Addition to retained earnings 20,640
Explanation / Answer
FLEURY, INC. Income Statement 2011 2012 Remarks Sales 725,000 870000 Costs 591,000 709200 Other expenses 12,000 14400 Earnings before interest and taxes 122,000 146,400 Interest paid 14,000 14,000 Taxable income 108,000 132,400 Taxes (50%) 54,000 66200 Net income 54,000 66,200 Dividends 33,360 33,360 As no fress common stock is issued, with earlier dividend payout ratio on common stock, dividend will remain same Addition to retained earnings 20,640 32,840 FLEURY, INC. Balance Sheet Assets Liabilities and Owners’ Equity Remarks 2011 2012 2011 2012 Current assets Current liabilities Cash 21,540 25848 Accounts payable 55,700 66840 Accounts receivable 33,860 40632 Notes payable 14,900 14,900 Notes Payable remain unchanged Inventory 70,820 84984 Total 70,600 81740 Total 126,220 151464 Long-term debt 139,000 139,000 Fixed assets Owners’ equity Net plant and equipment 280,000 336000 Common stock and paid-in surplus 125,000 125,000 Retained earnings 71,620 104,460 71620+32840 Total 196,620 229,460 Total assets 406,220 487,464 Total liabilities and owners’ equity 406,220 450,200 Excess of Assets over Liabilities & Equity 37,264 So External Financing is required for $37,264