Question

Calculating efn [lo2] the most recent financial statements for fleury. inc.. follow. sales for 2012 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. 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?

Answer 1

To support a 20 percent growth rate in sales, Fleury Inc. will need external financing. The calculation involves determining the increase in assets, increase in liabilities, and increase in retained earnings from the financial statements.

Step-by-step explanation:

To support a 20 percent growth rate in sales, Fleury Inc. will need external financing. Since the firm is operating at full capacity and no new debt or equity is issued, the external financing needed can be calculated using the equation:

External Financing Needed = (Increase in Assets - Increase in Liabilities - Increase in Retained Earnings)

Here, the increase in assets includes the increase in current assets and fixed assets, while the increase in liabilities includes the increase in accounts payable. The increase in retained earnings can be calculated as the net income multiplied by (1 - Dividend Payout Ratio).

By plugging in the appropriate values from the financial statements, we can calculate the external financing needed to support the 20 percent growth rate in sales.