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?