In the previous question, assume Lafferty Ranch pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed.

Data from Problem 1

Consider the following simplified financial statements for the Lafferty Ranch Corporation (assuming no income taxes):

Lafferty Ranch has predicted a sales increase of 10 percent. It has predicted that every item on the balance sheet will increase by 10 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here?

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Income Statement Sales Costs Net income $15,000 11,000 $ 4,000 Assets Total Balance Sheet Debt Equity Total $4,300 $4,300 $2,800 1,500 $4,300