Van Auken Lumber’s 2002 financial statements are shown below.

a. Assume that the company was operating at full capacity in 2002 with regard to all items except fixed assets; fixed assets in 2002 were being utilized to only 75 percent of capacity. By what percentage could 2003 sales increase over 2002 sales without the need for an increase in fixed assets?

b. Now suppose 2003 sales increase by 25 percent over 2002 sales. How much additional external capital will be required? Assume that Van Auken cannot sell any fixed assets.
(Hint: Use the percent of sales method to develop a pro forma balance sheet and income statement as in Tables 11-2 and 11-3.) Assume that any required financing is borrowed as notes payable. Use a 12 percent interest rate for all debt at the beginning of the year to forecast interest expense (cash does not earn interest),and use a pro forma income statement to determine the addition to retained earnings. (Another hint: Notes payable
$6,021.)

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Van Auken Lumber: Balance Sheet as of December 31, 2002 (Thousands of Dollars) Cash $ 1,800 Accounts payable $ 7,200 Receivables 10,800 Notes payable 3,472 Inventories 12,600 Accruals 2,520 Total current assets $25,200 Total current liabilities $13,192 Net fixed assets 21,600 Mortgage bonds 5,000 Common stock 2,000 Retained earnings 26,608 Total assets $46,800 Total liabilities and equity $46,800