Given the financial statements below for Firefly Enterprises

Given the financial statements below for Firefly Enterprises, what is the external financing need for a pro forma increase in sales of 10%? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.

  

Firefly Enterprises

Income Statement ($ Million)

2011

Sales

740

Cost of Goods Sold

452

Selling, General, & Admin Exp.

124

Depreciation

40

Earnings Before Interest & Taxes

124

Interest Expense

24

Taxable Income

100

Taxes at 40%

40

Net Income

60

Dividends

18

Addition to Retained Earnings

42

Balance Sheets as of 12-31

Assets

2010

2011

Cash

20

20

Account Receivable

102

110

Inventory

76

80

Total Current Assets

198

210

Net Fixed Assets

352

410

Total Assets

550

620

Liabilities and Owners Equity

2010

2011

Accounts Payable

62

70

Notes Payable

0

0

Total Current Liabilities

62

70

Long-Term Debt

280

300

Common Stock

34

34

Retained Earnings

174

216

Total Liab. and Owners Equity

550 620

Firefly Enterprises
Income Statement ($ Million)		2011
Sales		740
Cost of Goods Sold		452
Selling, General, & Admin Exp.		124
Depreciation		40
Earnings Before Interest & Taxes		124
Interest Expense		24
Taxable Income		100
Taxes at 40%		40
Net Income		60
Dividends		18
Addition to Retained Earnings		42
Balance Sheets as of 12-31
Assets	2010	2011
Cash	20	20
Account Receivable	102	110
Inventory	76	80
Total Current Assets	198	210
Net Fixed Assets	352	410
Total Assets	550	620
Liabilities and Owners Equity	2010	2011
Accounts Payable	62	70
Notes Payable	0	0
Total Current Liabilities	62	70
Long-Term Debt	280	300
Common Stock	34	34
Retained Earnings	174	216
Total Liab. and Owners Equity	550 620

Solution

External financing needed = Increase in assets - Increase in liabilities - increase in retained earnings Increase in assets = 2011 assets × sales growth rate Increase in assets = $620 * 10% = $62 Increase in liabilities (accounts payable) = 2011 Accounts payable * sales growth rate Increase in liabilities (accounts payable) = $70 * 10% = $7 Increase in retained earnings Sales $814.00 Cost of goods sold $497.20 Selling, General, & Admin Exp. $136.40 Depreciation $44.00 EBIT $136.40 Interest expense $24.00 Taxable Income $112.40 Taxes @ 40% $44.96 Net Income $67.44 Dividend (30%) $20.23 Addition to retained earnings $47.21 External financing needed = $62 - $7 - $47.21 = $7.79 millions