These are your financial statements for the year ending today: BALANCE SHEET Cash $ 340,000 Accounts Payable

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Question:

These are your financial statements for the year ending today:

BALANCE SHEET

Cash $ 340,000 Accounts Payable $ 2,720,000

Receivables 4,200,000 Accruals 980,000

Inventories 4,960,000 Notes Payable 1,300,000

Total Current Assets $ 9,500,000 Total Current Liabilities $ 5,000,000

Net Fixed Assets 2,500,000 Long –term Debt 2,000,000

Common Stock 3,800,000

Retained Earnings 1,200,000

Total Assets $12,000,000 Total Liabilities and Equity $12,000,000

INCOME STATEMENT

Sales $36,500,000

Less: Operating Costs 29,200,000

EBIT $ 7,300,000

Less: Interest 500,000

EBT $ 6,800,000

Less: Taxes (40%) 2,720,000

Net Income $ 4,080,000

Less: Dividends 3,500,000

Additions to Retained Earnings $ 580,000

You expect sales to increase 40% next year.
Assume you are currently operating at 75% capacity
Interest expense next year will be 15% of any interest-bearing debt balance at the beginning of the year
Dividends will increase by 50% next year
Operating costs are 60% fixed and 40% variable
Days Sales Outstanding are expected to decrease by 5 days next year
Days Payables Outstanding are expected to decrease by 4 days next year
Cash will vary with sales

Please calculate the external financing twice (1^st pass only). The first time, use the information given above. The second time you solve for external financing, please ASSUME DAYS’ SALES OUTSTANDING AND DAYS’ PAYABLES OUTSTANDING DO NOT DECREASE. Discuss what you observe.