7. Continuing problem 6, Pepperton's annual income statement and balance sheet for December 31, 2005 appear below. Additional infor- mation about the company's accounting methods and the treasurer's expectations for the first quarter of 2006 appear in the footnotes.

a. Use this information and the information in problem 6 to construct a pro forma income statement for the first quarter of 2006 and a pro forma balance sheet for March 31, 2006. What is your estimated external financing need for March 31?

b. Does the March 31, 2006, estimated external financing equal your cash surplus (deficit) for this date from your cash budget in prob- lem 6? Should it?

c. Do your pro forma forecasts tell you more than your cash budget does about Pepperton's financial prospects?

d. What do your pro forma income statement and balance sheet tell you about Pepperton's need for external financing on February 28, 2006?

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Net sales Cost of goods sold Gross profits Pepperton Annual Income Statement December 31, 2005 ($ thousands) Selling and administrative expenses? Interest expense Depreciation Net profit before tax Tax (33%) Net profit after tax $6,000 3,900 2,100 1,620 90 90 300 99 $ 201