The 2019 financial statements for Growth Industries are presented below.
| INCOME STATEMENT, 2019 | ||||||||
| Sales | $ | 370,000 | ||||||
| Costs | 235,000 | |||||||
| EBIT | $ | 135,000 | ||||||
| Interest expense | 27,000 | |||||||
| Taxable income | $ | 108,000 | ||||||
| Taxes (at 21%) | 22,680 | |||||||
| Net income | $ | 85,320 | ||||||
| Dividends | $ | 51,192 | ||||||
| Addition to retained earnings | $ | 34,128 | ||||||
| BALANCE SHEET, YEAR-END, 2019 | ||||||||
| Assets | Liabilities | |||||||
| Current assets | Current liabilities | |||||||
| Cash | $ | 6,000 | Accounts payable | $ | 13,000 | |||
| Accounts receivable | 11,000 | Total current liabilities | $ | 13,000 | ||||
| Inventories | 33,000 | Long-term debt | 270,000 | |||||
| Total current assets | $ | 50,000 | Stockholders’ equity | |||||
| Net plant and equipment | 310,000 | Common stock plus additional paid-in capital | 15,000 | |||||
| Retained earnings | 62,000 | |||||||
| Total assets | $ | 360,000 | Total liabilities plus stockholders' equity | $ | 360,000 | |||
Sales and costs are projected to grow at 20% 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% capacity, so it plans to increase fixed assets in proportion to sales. Interest expense will equal 10% of long-term debt outstanding at the start of the year. The firm will maintain a dividend payout ratio of 0.60.
a. What is the required external financing over the next year?
