Ch Sales Costs EBIT Interest expense Taxable income Taxes (at 35%) Net income $
ID: 2802435 • Letter: C
Question
Ch Sales Costs EBIT Interest expense Taxable income Taxes (at 35%) Net income $ 400,008 250,080 150,0e0 30.000 129,000 42,088 78,888 $ 39,80 Dividends Addition to retained earnings 39,800 BALANCE SHEET, YEAR-END, 2017 Liabilities Assets Current 1iabilities Current assets Cash Accounts receivable Inventories $ 9,00 14,800 27,080 Accounts payable Total current liabilities $ 16,eee $16,8ee 300,00e Long-term debt s s0,000 Stockholders' equity Retained earnings Total current assets 15,000 Net plant and equipment 340,000Common stock plus additional paid-in capital 59 s 398,e00 Total 1iabilities and stockholders' equity $ 390,0ee Total assets Sales and costs are projected to grow at 30% 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 75% ca to sales. Interest expense ratio of 0.50 pacity, so it plans to increase fixed assets in proportion The firm will maintain a dividend payout will equal 10% of long-term debt outstanding at the start of the year. What is the required external financing over the next year? (Negative amounts should be indicated by a minus signjExplanation / Answer
Calculation of required external financing over the next year Required external financing is calculated as the excess of required increase in assets over the increase in liabilities and increase in retained earnings. Required external financing = Increase in assets - Increase in liabilities - Increase in retained earnings Increase in assets = 2017 Total assets * Sales Growth rate = $390000 * 30% = $1,17,000 Increase in liabilities = 2017 Accounts Payables * Sales Growth rate = $16000 * 30% = $4800 Calculation of projected Income statement and addition to retained earnings Sales $520,000 Costs $325,000 EBIT $195,000 Interest Expense $30,000 Taxable Income $165,000 Taxes @ 35% $57,750 Net Income $107,250 Dividends $53,625 Addition to retained earnings $53,625 Required external financing over the next year = $117000 - $4800 - $53625 = $58,575