EXERCISE 9–1 Comparative income statements and balance sheets for Best Buy are shown below ($ millions).

Year 2 Year 1 Income Statement Net sales ................................................................................. $15,326 $12,494 Cost of goods .......................................................................... 12,267 10,101 Gross profit ............................................................................. 3,059 2,393 Selling, general and administrative expense........................... 2,251 1,728 Depreciation and amortization expense................................... 167 103 Income before tax.................................................................... 641 562 Income tax expense ................................................................. 245 215 Net income .............................................................................. $ 396 $ 347 Outstanding shares................................................................. 208 200 Balance Sheet Year 2 Year 1 Cash........................................................................................ $ 746 $ 751 Receivables............................................................................. 313 262 Inventories .............................................................................. 1,767 1,184 Other current assets................................................................ 102 41 Total current assets................................................................. 2,928 2,238 Property, plant, and equipment ............................................... 1,987 1,093 Accumulated depreciation....................................................... 543 395 Net property, plant, and equipment......................................... 1,444 698 Other noncurrent assets.......................................................... 466 59 Total assets............................................................................. $ 4,838 $ 2,995 Accounts payable and accrued liabilities................................ $ 2,473 $ 1,704 Short-term debt and current maturities of long-term debt ...... 114 16 Income tax liabilities............................................................... 127 65 Total current liabilities ............................................................ 2,714 1,785 Long-term liabilities................................................................ 122 100 Long-term debt ....................................................................... 181 15 Total long-term liabilities........................................................ 303 115 Common stock......................................................................... 20 20 Capital surplus ....................................................................... 576 247 Retained earnings................................................................... 1,225 828 Shareholders’ equity................................................................ 1,821 1,095 Total liabilities and equity....................................................... $ 4,838 $ 2,995 Required:

a. Use the following ratios to prepare a projected income statement, balance sheet, and statement of cash flows for Year 3.

Sales growth.................................................................................................. 22.67%
Gross profit margin ....................................................................................... 19.96%
Selling, general, and administrative expense/Sales ...................................... 14.69%
Depreciation expense/Prior-year PPE gross.................................................... 15.28%
Income tax expense/Pretax income ................................................................ 38.22%
Accounts receivable turnover (Sales/Accounts receivable) ............................ 48.96 Inventory turnover (Cost of goods sold/Inventory) .......................................... 6.94 Accounts payable turnover (Cost of goods sold/Accounts payable)................ 4.96 Taxes payable/Tax expense ............................................................................ 51.84%
Total assets/Stockholders’ equity (financial leverage)................................... 2.55 Dividends per share....................................................................................... $ 0.00 Capital expenditures/Sales............................................................................ 6.71%

b. Based on your initial projections, how much external financing (long-term debt and/or stockholders’ equity) will Best Buy need to fund its growth at projected increases in sales?