<div class="text">

<div class="question"><p><span class="bo

ld">Calculating EFN</span>
The most recent financial statements for Retro Machine, Inc., follow.
Sales for 2010 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 are issued,
what is the external financing needed to support the 20 percent growth
rate in sales</p> <table border="0" cellpadding="0" cellspacing="0"><tbody>
<tr><td colspan="2" valign="top" align="center"><p align="center">
RETRO MACHINE INC 2009 Income Statement</p></td></tr><tr><td valign="top" align=
"left"><p>Sales</p></td><td valign="top" align="right"><p align="right">$929,000
</p></td></tr><tr><td valign="top" align="left"><p>Costs</p></td><td valign="top
" align="right"><p align="right">7,23,000</p></td></tr><tr><td valign="top" alig
n="left"><p>Other expenses</p></td><td valign="top" align="right"><p align="righ
t"><span class="underline">19,000</span></p></td></tr><tr><td valign="top" align
="left"><p>Earnings before interest and taxes</p></td><td valign="top" align="ri
ght"><p align="right">$187,000</p></td></tr><tr><td valign="top" align="left"><p
>Interest paid</p></td><td valign="top" align="right"><p align="right"><span cla
ss="underline">14,000</span></p></td></tr><tr><td valign="top" align="left"><p>T
axable income</p></td><td valign="top" align="right"><p align="right">$173,000</
p></td></tr><tr><td valign="top" align="left"><p>Taxes (35%)</p></td><td valign=
"top" align="right"><p align="right"><span class="underline">60,550</span></p></
td></tr><tr><td valign="top" align="left"><p>Net income</p></td><td valign="top"
align="right"><p align="right"><span class="underline">$112,450</span></p></td>
</tr><tr><td valign="top" align="left"><p> Dividends</p></td><td valign="top" al
ign="right"><p align="right">$ 33,735</p></td></tr><tr><td valign="top" align="l
eft"><p> Addition to retained earnings</p></td><td valign="top" align="right"><p
align="right">78,715</p></td></tr></tbody></table><p> </p> <table border="0" cellpa
dding="2" cellspacing="2" width="40%"><tbody><tr><td colspan="4" valign="top" al
ign="center"><p align="center">RETRO MACHINE, INC Balance Sheet as of December 3
1, 2009</p></td></tr><tr><td colspan="2" valign="top" align="center"><p align="c
enter">ASSETS</p></td><td colspan="2" valign="top" align="center"><p align="cent
er">LIABILITIES AND OWNERS' EQUITY</p></td></tr><tr><td valign="top" align="left
"><p>Current assets</p></td><td valign="top" align="right"><p align="right"> </p
></td><td valign="top" align="left"><p>Current liabilities</p></td><td valign="t
op" align="right"><p align="right"> </p></td></tr><tr><td valign="top" align="le
ft"><p>Cash</p></td><td valign="top" align="right"><p align="right">$25,300</p><
/td><td valign="top" align="left"><p>Accounts payable</p></td><td valign="top" a
lign="right"><p align="right">$ 68,000</p></td></tr><tr><td valign="top" align="
left"><p>Accounts receivable</p></td><td valign="top" align="right"><p align="ri
ght">40,700</p></td><td valign="top" align="left"><p>Notes payable</p></td><td v
align="top" align="right"><p align="right"><span class="underline">17,000</span>
</p></td></tr><tr><td valign="top" align="left"><p>Inventory</p></td><td valign=
"top" align="right"><p align="right"><span class="underline">86,900</span></p></
td><td valign="top" align="left"><p>Total</p></td><td valign="top" align="right"
><p align="right">$ 85,000</p></td></tr><tr><td valign="top" align="left"><p>Tot
al</p></td><td valign="top" align="right"><p align="right">$152,900</p></td><td
valign="top" align="left"><p>Long-term debt</p></td><td valign="top" align="righ
t"><p align="right">$158,000</p></td></tr><tr><td valign="top" align="left"><p>F
ixed assets</p></td><td valign="top" align="right"><p align="right"> </p></td><t
d valign="top" align="left"><p>Owners' equity</p></td><td valign="top" align="ri
ght"><p align="right"> </p></td></tr><tr><td valign="top" align="left"><p>Net pl
ant and</p></td><td valign="top" align="right"><p align="right"><span class="und
erline">$413,000</span></p></td><td valign="top" align="left"><p>Common stock an
d paid-in surplus</p></td><td valign="top" align="right"><p align="right">$140,0
00</p></td></tr><tr><td valign="top" align="left"><p>equipment</p></td><td valig
n="top" align="right"><p align="right"> </p></td><td valign="top" align="left"><

p> </p></td><td valign="top" align="right"><p align="right"> </p></td></tr><tr><

td valign="top" align="left"><p> </p></td><td valign="top" align="right"><p alig
n="right"> </p></td><td valign="top" align="left"><p>Accumulated retained earnin
gs</p></td><td valign="top" align="right"><p align="right"><span class="underlin
e">182,900</span></p></td></tr><tr><td valign="top" align="left"><p> </p></td><t
d valign="top" align="right"><p align="right"> </p></td><td valign="top" align="
left"><p>Total</p></td><td valign="top" align="right"><p align="right"><span cla
ss="underline">$322,900</span></p></td></tr><tr><td valign="top" align="left"><p
>Total assets</p></td><td valign="top" align="right"><p align="right"><span clas
s="underline">$565,900</span></p></td><td valign="top" align="left"><p>Total lia
bilities and owners' equity</p></td><td valign="top" align="right"><p align="rig
ht"><span class="underline">$565,900</span></p></td></tr></tbody></table></div>
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