The most recent financial statements for Fleury Inc., follow. Sales for 2012 are
ID: 2794529 • Letter: T
Question
The most recent financial statements for Fleury Inc., follow. Sales for 2012 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 FLEURY, INC 2011 Income Statement Sales Costs Other expenses $748,000 583,000 19,000 Earnings before interest and taxes Interest paid $146,000 10,000 Taxable income Taxes (35%) $136,000 47,600 Net income 88,400 Dividends Addition to retained earnings $17.680 70,720 FLEURY, INC Balance Sheet as of December 31, 2011 Assets Liabilities and Owners' Equity Current assets Current liabilities Cash Accounts receivable $ 20,740 Accounts payable 54,900 14,100 S 69,000 100,000 Net plant and equipment 400,000 Common stock and paid-in surplus $100,000 33,060 Notes payable Inventory 70,020 Total Total Fixed assets $ 123,820 Long-term debt Owners' equity Retained earnings 254,820 $ 354,820 S 523,820 otal labilities and owners' equity $523,820 Total Total assets 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? (Do not round intermediate calculations.) EFNExplanation / Answer
External funds needed (EFN) is calculated as the excess of required increase in assets over the increase in liabilities and increase in retained earnings. External funds needed = increase in assets increase in liabilities – increase in retained earnings Increase in assets = 2011 assets × sales growth rate = $523820 * 30% = $1,57,146 Increase in liabilities = 2011 Accounts Payable × sales growth rate = $54900 * 30% = $16,470 Increase in retained earnings = 2012 Net Income * (1-dividend payout rate) = $116870 * (1-0.20) = $93,496 External funds needed = $157146 - $16470 - $93496 = $47,180 EFN $47,180 Working Calculation of Net Income for 2012 Income statement Sales $972,400 Costs $757,900 Other Expenses $24,700 Earnings before interest and taxes $189,800 Interest paid $10,000 Taxable Income $179,800 Taxes (35%) $62,930 Net Income $116,870 Dividend payout ratio for 2011 = Dividend / Net Income = $17680 / $88400 = 20%