April 23, 2014

Homework Help: Finance

Posted by cj on Wednesday, March 20, 2013 at 11:51pm.

The most recent financial statements for Retro Machine, Inc., follow. Sales for 2010 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. The tax rate is 35 percent.

2009 Income Statement
Sales $ 937,000
Costs 716,000
Other expenses 18,000

Earnings before interest and taxes $ 203,000
Interest paid 12,000

Taxable income $ 191,000
Taxes (35%) 66,850

Net income $ 124,150

Dividends $ 37,245
Addition to retained earnings 86,905

Balance Sheet as of December 31, 2009
Current assets Current liabilities
Cash $ 25,800 Accounts payable $ 67,800
Accounts receivable 41,300 Notes payable 15,500

Inventory 87,900 Total $ 83,300

Total $ 155,000 Long-term debt $ 151,000

Owners’ equity
Fixed assets Common stock and paid-in surplus $ 126,000
Net plant and equipment $ 431,000 Accumulated retained earnings 225,700

Total $ 351,700

Total assets $ 586,000 Total liabilities and owners’ equity $ 586,000

If the firm is operating at full capacity and no new debt or equity are issued, what is the external financing needed to support the 20 percent growth rate in sales? (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign.)

External financing needed $

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