The most recent financial statements for Fleury Inc., follow. Sales for next yea
ID: 2821704 • Letter: T
Question
The most recent financial statements for Fleury Inc., follow. Sales for next year are projected to grow by 22 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 22 percent growth rate in sales?
(Omit the "$" sign and commas in your response. Enter your answer rounded to 2 decimal places. For example, $1,200.456 should be entered as 1200.46.)
FLEURY, INC. Income Statement Sales $ 588094 Costs 503749 Other expenses 19271 Earnings before interest and taxes $ ? Interest paid 13820 Taxable income $ ? Taxes (30%) ? Net income ? Dividends $ 6147Explanation / Answer
Step 1: Fleury Inc. Income Statement
Step 2: Fleury Inc. Balance sheet
Step 3: Calculation of external financing needed (EFN)
We have
External Financing Needed = (A0/S0*(S1-S0)) - (L0/S0*(S1-S0)) - (PM*S1*b)
where
Ao - Assets (at time 0) which vary directly with Sales = 569752
Lo - Liabilities (at time 0) which vary directly with Sales=50410
So - Current Sales =588094
S1 - Projected Sales = 588094*1.22=717474.68
b - Retention ratio = Addition to Retained Earnings/Net Income= 29730.80/35877.80
PM - Profit Margin = Net income/Sales = 35877.80/588094
External Financing Needed = (569752/588094*(717474.68-588094)) - (50410/588094*(717474.68-588094)) - (35877.80/588094*717474.68*29730.80/35877.80)
= 125345.44-11090.2-36271.58
= 77983.66
Sales 588,094.00 Less: Cost of goods sold 503,749.00 Gross profit 84,345.00 Less: other operating expenses 19,271.00 EBIT 65,074.00 Less: Interest 13,820.00 Income Before Income Tax (EBT) 51,254.00 Less: Income Tax@30% 15,376.20 Net Income 35,877.80 Less: Dividend 6,147.00 Addition to retained earnings 29,730.80