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External Financing Needed Question

Crosby Inc. reported 2017 financial statements showing sales of $756,000 and net income of $88,550. Their balance sheet lists current assets of $166,980 and fixed assets of $432,000. Sales are projected to grow 20% in 2018. Costs, expenses, assets, and liabilities will increase proportionally with sales growth. To calculate the external financing needed to support the 20% sales growth while maintaining current debt and equity levels.

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769 views1 page

External Financing Needed Question

Crosby Inc. reported 2017 financial statements showing sales of $756,000 and net income of $88,550. Their balance sheet lists current assets of $166,980 and fixed assets of $432,000. Sales are projected to grow 20% in 2018. Costs, expenses, assets, and liabilities will increase proportionally with sales growth. To calculate the external financing needed to support the 20% sales growth while maintaining current debt and equity levels.

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Shaolin105
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9/13/2020 Assignment Print View

 
12. Award: 8.37 points
 

Problem 4-24 Calculating EFN [LO2]

The most recent financial statements for Crosby, Inc., follow. Sales for 2018 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.
 
CROSBY, INC.
2017 Income Statement

Sales $ 756,000
Costs 591,000
Other expenses 27,000

Earnings before interest and taxes $ 138,000


Interest paid 23,000

Taxable income $ 115,000


Taxes (23%) 26,450

Net income $ 88,550

Dividends $ 26,565
Addition to retained earnings 61,985
 
CROSBY, INC.
Balance Sheet as of December 31, 2017
Assets Liabilities and Owners’ Equity
Current assets Current liabilities
Cash $ 21,540 Accounts payable $ 55,700
Accounts receivable 44,480 Notes payable 14,900

Inventory 100,960 Total $ 70,600

Total $ 166,980 Long-term debt $ 139,000

Fixed assets Owners’ equity


Net plant and equipment $ 432,000 Common stock and paid-in surplus $ 119,000
Retained earnings 270,380

Total $ 389,380

Total assets $ 598,980 Total liabilities and owners’ equity $ 598,980

 
If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed
to support the 20 percent growth rate in sales? (Do not round intermediate calculations.)

EFN

References

Worksheet Difficulty: 2 Intermediate Section: 4.4 External Financing and Growth

Problem 4-24 Calculating EFN Learning Objective: 04-02 Compute the


[LO2] external financing needed to fund a firm's
growth.

https://ezto.mheducation.com/hm.tpx?todo=c15SinglePrintView&singleQuestionNo=12.&postSubmissionView=13252714027587673&wid=132527143… 1/1

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