Explore BrainMass

# Calculating External Financing Needed

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Trying to find the external financing needed to support the 20% growth rate in sales of a company who is operating at full capacity and no debt or equity is issued with the following information:

Sales for 2007 are projected to grow by 20 percent.

Interest expense will remain constant; the tax rate and the dividend payout rate will remain constant.

Costs, other expenses, current assests, and accounts payable increase spontaneously with sales.

#### Solution Preview

In calculating the EFN we first make the proforma income statement and balance sheet

Income Statement
2007 Proforma
Sales \$845,000 1,014,000 Sales will increase by 20%
Costs 657,000 788,400 Costs will increase by 20% - the same rate as sales
Other Expenses 17,500 21,000 Costs will increase by 20% - the same rate as sales
Earnings before interest and taxes \$170,500 204,600
Interest paid 12,500 12,500 remains the ...

#### Solution Summary

The solution explains how to determine the amount of external financing needed given the growth in sales

\$2.49