a. Use the Executive Paper model (Tables 29.6???29.8) to produce pro forma income statements, balance sheets, and sources and uses of funds statements for 2000 and 2001.

Assume business as usual except that sales and costs were planned to expand by 30 percent per year, as were fixed assets and net working capital. The interest rate was forecasted to remain at 10 percent and stock issues were ruled out. Executive Paper also stuck to its 60 percent dividend payout ratio.

b. What are the firm?s debt ratio and interest coverage under this plan?

c. Can the company continue to finance expansion by borrowing?

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1999 2000 2004 2,640 2,376 Revenues Costs (90% of revenues) Depreciation (10% of fixed assets at start of year) 2,200 1,980 53.3 5,474 4,927 55.0 114 EBIT 166.7 209.0 433.4 Interest (10% of long-term debt at start of year) Tax (40% of pretax profit) 42.5 45 131.3 49.7 65.6 120.8 Net income 74.5 98.4 181.2 Operating cash flow 127.8 153.4 295.3 1999 2000 2004 Net working capital (20% of revenues) Net fixed assets (25% of revenues) Total net assets 440 528 1,095 1,369 2,463 1,651 812 660 1,188 550 990 Long-term debt Equity Total long-term liabilities and equity 450 608.6 540 579.4 990 1,188 2,463