b. Now suppose that 2011 sales increase by 25% over 2010 sales. Use the forecasted financial statement method to forecast a 12/31/11 balance sheet and 2011 income statement, assuming that (1) the historical ratios of operating costs/sales, cash/

sales, receivables/sales, inventories/sales, accounts payable/sales, and accruals/

sales remain constant; (2) Van Auken cannot sell any of its fixed assets; (3) any required financing is done at the end of 2011 as notes payable; (4) the firm earns no interest on its cash; and (5) the interest rate on all of its debt is 12%. Van Auken pays out 60% of its net income as dividends and has a tax rate of 40%.

How much additional external capital will be required? (Hints: Base the forecasted interest expense on the amount of debt at the beginning of the year, because any new debt is added at the end of the year; also, use the forecasted income statement to determine the addition to retained earnings for use in the balance sheet.)