1. Consider the following simplified financial statements for Fire Dragon Corporation (assume no income taxes):

Income Statement Sales $32,000

Costs $24,400

Net Income $7,600

Balance Sheet

Assets $25,300

Total $25,300

Debt $5,800

Equity $19,500

Total $25,300

The company has forecast a sales increase of 15 percent. Fire Dragon has also predicted that every item on the balance sheet will increase by 15 percent. Create the pro forma statements and reconcile them. What is the plug variable here?

2. Now lets assume that Fire Dragon pays out half of net income in the form of a cash dividend. Also, costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed. What is the plug variable here?