5. The most recent balance sheet and income statement for Popart Inc. are given below. Prepare pro forma financial statements for the next year and calculate the amount of additional long-term borrowing that would be necessary to fund the firms projected growth.

• Sales are projected to grow by 20% next year.
• Costs are expected to grow with sales. However, depreciation expense will not change next year.
• Cash, inventories, accounts payable, and PP&E also vary with sales. The value of land will remain constant in the coming year.
• The firm plans to enforce a collection policy that will keep Days Sales in Receivables ratio at 30 days.
• The company intends to keep its dividend payout ratio constant.
• The companys creditors require it to maintain a Current Ratio of at least 1.80.
• The company prefers to use as much short-term debt (Notes Payable) as possible. If short- term debt capacity is not sufficient, it will raise the additional needed funds through long-term borrowing (Long-term Debt). The interest rate applicable to both short and long-term debt is 10%.
• The firms tax rate is 40%.

This year's Balance Sheet Cash Accounts Receivable Inventories Tot. Current Assets $9,000 $12,000 $29,000 $50,000 Accounts Payable Notes Payable Tot. Current Liab, $10,000 $17,000 $27,000 Long-term Debt $30,000 Land Net Plant, Property & Egpmt Total Fixed Assets Total Assets $20,000 $42,000 $62,000 $112,000 Common Stock Retained Earnings Tot. Liab, & Equity $31,000 $24,000 $112,000 Annual Income Statement for this year Sales Cost of Goods Sold Gross Margin Selling Expense Gen.& Adm. Expense Depreciation Expense EBIT Interest Expense Taxes Net Income $125,000 $75,000 $50,000 $21,000 $12,500 $4,500 $12,000 $4,700 $7,300 $2,920 $4,380 Dividends R/E $1,752 $2,628