Sales and costs in 2013 are projected to be 20 higher than

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The 2012 financial statements for Growth Industries are presented below.

INCOME STATEMENT, 2012
Sales
$ 200,000
Costs

150,000




EBIT

50,000
Interest expense

10,000




Taxable income

40,000
Taxes (at 35%)

14,000




Net income
$ 26,000
Dividends 10,400

Addition to retained earnings 15,600


BALANCE SHEET, YEAR-END, 2012
Assets

Liabilities

Current assets

Current liabilities

Cash $ 3,000 Accounts payable $ 10,000






Accounts receivable
8,000 Total current liabilities $ 10,000
Inventories
29,000 Long-term debt
100,000






Total current assets $ 40,000 Stockholders%u2019 equity

Net plant and equipment $ 160,000 Common stock plus additional paid-in capital
15,000



Retained earnings
75,000






Total assets $ 200,000 Total liabilities plus stockholders%u2019 equity $ 200,000











Sales and costs in 2013 are projected to be 20% higher than in 2012. Both current assets and accounts payable are projected to rise in proportion to sales. The fixed assets of Growth Industries are operating at only 75% of capacity. Interest expense in 2013 will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of .40.

What is required external financing over the next year? 

Even if sales increase by 20%, the firm still has more than enough fixed assets to meet production. Only working capital will increase. Net working capital of the firm in 2012 was $. The increase in net working capital will be $, which is less than 2013 retained earnings. Thus required external financing is?

Reference no: EM13478534

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