3.

Major Manuscripts, Inc. 2012 Income Statement
Net sales	$	8,300
Cost of goods sold		7,115
Depreciation		260
Earnings before interest and taxes	$	925
Interest paid		56
Taxable Income	$	869
Taxes		343
Net income	$	526
Dividends	$	197

Major Manuscripts, Inc. 2012 Balance Sheet
	2012				2012
Cash	$	2,900		Accounts payable	$	2,050
Accounts rec.		930		Long-term debt		350
Inventory		3,200		Common stock	$	3,600
Total	$	7,030		Retained earnings		4,930
Net fixed assets		3,900
Total assets	$	10,930		Total liabilities & equity	$	10,930

Major Manuscripts, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. How much additional debt is required if no new equity is raised and sales are projected to increase by 10 percent?

A. $176

B. $876

C. $153

D. $362

E. $526

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4.

Major Manuscripts, Inc. 2012 Income Statement
Net sales	$	7,700
Cost of goods sold		6,800
Depreciation		220
Earnings before interest and taxes	$	680
Interest paid		60
Taxable Income	$	620
Taxes		235
Net income	$	385
Dividends	$	196

Major Manuscripts, Inc. 2012 Balance Sheet
	2012				2012
Cash	$	2,330		Accounts payable	$	1,780
Accounts rec.		870		Long-term debt		360
Inventory		2,350		Common stock	$	2,500
Total	$	5,550		Retained earnings		4,120
Net fixed assets		3,210
Total assets	$	8,760		Total liabilities & equity	$	8,760

Assume that Major Manuscripts, Inc., is currently operating at 80 percent of capacity and that sales are projected to increase to $10,100. What is the projected addition to fixed assets?

A. $432

B. $475

C. $633

D. $274

E. $158

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5.

Hungry Kids 2012 Income Statement
Net sales	$	5,500
Cost of goods sold		4,100
Depreciation		725
Earnings before interest and taxes	$	675
Interest paid		140
Taxable Income	$	535
Taxes		218
Net income	$	317
Dividends	$	82
Addition to retained earnings	$	235

Hungry Kids 2012 Balance Sheet
	2012				2012
Cash	$	45		Accounts payable	$	1,375
Accounts rec.		550		Long-term debt		1,650
Inventory		880		Common stock	$	2,100
Total	$	1,475		Retained earnings		3,850
Net fixed assets		7,500
Total assets	$	8,975		Total liabilities & equity	$	8,975

Hungry Kids is currently operating at full capacity. The profit margin and the dividend payout ratio are held constant. Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 4 percent. What is the external financing need?

A. $44

B. $59

C. $43

D. $42

E. $60