Garlington Technologies Inc. 2012 financial statements are shown below. Garlington Technologies Inc: Balance Sheet as of December 31, 2012

Garlington Technologies Inc.: Income Statement for December 31, 2012
Sales..............................$3,600,000
Operating costs.................. 3,279,720
EBIT.............................. 320, 280
Interest............................ 18, 280
EBT................................ 302, 000
Taxes (40%) ..................... 120,800
Net income ........................$ 181.200
Dividends .........................$ 108.000
a. Suppose that in 2013 sales increase by 10% over 2012 sales and that 2013 dividends will increase to $112,000. Construct the pro forma financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2012. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the AFN will be in the form of notes payable.
b. Below is some additional information on Garlington:
2012
Current ratio........................................ 1.81 (
Return on equity ................................... 9%
Earnings per share .................................$1.68
Dividends per share ................................$1
Number of common share ........................$18
I. Calculate the company's 2013 current ratio, ROE, EPS, and DPS based on the expansion and financing as in part a.
II. Because of an agreement with their lender, Garlington's current ratio cannot drop below 1.7( or it will violate a debt covenant. How much can the company increase its notes payable and still not violate its minimum current ratio?
III. Assume that Garlington increases its notes payable to the maximum allowed under its current ratio restriction and issues stock to raise the remaining funds required. Calculate the company's ROE, EPS, and DPS.
IV. Recalculate Garlington's ROE, EPS, and DPS if all the additional financing was obtained through the sale of new common stock. Do you think the financing choice matters to the investors holding the common stock?

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180,000 Accounts payable Cash Receivables Inventories Total current assets Fixed assets $ 360,000 156,000 180,000 696,000 1,800,000 204,000 $2,700,000 60,000 Notes payable 720,000 Accruals 1,260,000 1,440,000 Common stock Total current liabilities Retained earnings Total liabilities and equity Total assets $2,00,000