If the firm is operating at full capacity and no new debt or equity is issued, w
ID: 2760083 • Letter: I
Question
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? (Do not round intermediate calculations.)
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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? (Do not round intermediate calculations.)
The most recent financial statements for Fleury Inc., follow. Sales for 2015 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. FLEURY, INC. 2014 Income Statement Sales Costs Other expenses $751,000 586,000 22,000 Earnings before interest and taxes Interest paid $143,000 18,000 $125,000 50,000 laxable income Taxes (40%) Net income $ 75,000 Dividends Addition to retained e $30,000 45,000 arnings FLEURY, INC. Balance Sheet as of December 31, 2014 Assets Liabilities and Owners Equity Current assets Current liabilities $ 21,040 Accounts payable $ 55,200 Cash Accounts receivable 14,400 $ 69,600 $134,000 Net plant and equipment $240,000 Common stock and paid-in surplus $120,000 33,360 Notes payable Inventory 70,320 Total Total Fixed assets $124,720 Long-term debt Owners' equity 41,120 $161,120 $364,720 Retained earnings Total Total assets $364,720 Total liabilities and owners' equityExplanation / Answer
Answer
Fleury Inc. (income statement)
Figures in $
Particulars
2014
2015
Formula
Sales
a
751000
901200
751000*1.2
Costs
b
586000
703200
586000*1.2
Other expenses
c
22000
26400
22000*1.2
Earnings before interest & taxes (a-b-c)
d
143000
171600
Interest paid
e
18000
18000
Taxable income (d-e)
f
125000
153600
Taxes (40%)
g
50000
61440
Net income (f-g)
h
75000
92160
dividend
i
30000
36864
92160*(30000/75000)
Additional to retained earnings (h-i)
45000
55296
Fleury Inc.
Balance sheet of December 31, 2015
Figures in $
Liabilities & owner's Equity
Amount
Assets
Amount
Accounts payable
66240
(55200*1.2)
Current assets
149664
Notes payable
14400
(124720*1.2)
Long term debt
134000
Fixed assets
288000
(240000*1.2)
Owner's equity
Common stock and paid in surplus
120000
Retained earnings
96416
(55296+41120)
External financing needed
6608
437664
437664
Answer : External financing needed to support the 20 percent growth rate in sales is $ 6608
Fleury Inc. (income statement)
Figures in $
Particulars
2014
2015
Formula
Sales
a
751000
901200
751000*1.2
Costs
b
586000
703200
586000*1.2
Other expenses
c
22000
26400
22000*1.2
Earnings before interest & taxes (a-b-c)
d
143000
171600
Interest paid
e
18000
18000
Taxable income (d-e)
f
125000
153600
Taxes (40%)
g
50000
61440
Net income (f-g)
h
75000
92160
dividend
i
30000
36864
92160*(30000/75000)
Additional to retained earnings (h-i)
45000
55296