7. The most recent balance sheet and income statement for Pamplemousse Inc. are given below. Since you are the financial manager for Pamplemousse Inc., your boss has asked you to prepare pro forma financial statements for the next year and calculate the exact amount of additional long-term borrowing that would be necessary to fund the firms projected growth.

• Sales are projected to grow by 40% for next year.
• Current liabilities and most assets (cash, inventory and fixed assets) will vary directly with sales, but the firm plans to strictly enforce a collection policy that will reduce Days sales in receivables to 60 days (assuming a 365 day year).
• Assume that the Cost of Goods Sold, General & Administrative Expense, and Depreciation Expense vary directly with sales as well.
• The firm intends to keep its dividend payout ratio constant.
• The interest rate on long-term debt is 10% and the firms tax rate is 34%.
• The only restriction imposed on long-term borrowing is that the ratio of long-term debt to total assets cannot exceed 40%. You should only sell equity if you need additional money to fund the operations of the firm (over and beyond the long-term debt restriction).

Current Balance Sheet Liabilities & Owners' Equity Assets 200 500 500 Current Assets: Cash 100 Accounts Receivable 300 Inventory 100 Total Current Assets 500 Fixed Assets: Net PPE 900 Total Assets 1400 Accounts Payable Long-term Debt Owners' Equity: Common Stock & Paid-in Capital Retained Earnings Total Owners' Equity Total Liabilties & Owners' Equity 200 700 1400 Income Statement for this year Net Sales Cost of Goods Sold Depreciation Expense General & Administrative Expenses Earnings before interest and taxes (EBIT) Interest Expense Earnings before taxes (EBT) Taxes (34) NET INCOME 1000 500 50 130 320 50 270 91.8 178.2. Dividends Addition to Retained Earnings 58.8 119.4 Current Balance Sheet Liabilities & Owners' Equity Assets 200 500 500 Current Assets: Cash 100 Accounts Receivable 300 Inventory 100 Total Current Assets 500 Fixed Assets: Net PPE 900 Total Assets 1400 Accounts Payable Long-term Debt Owners' Equity: Common Stock & Paid-in Capital Retained Earnings Total Owners' Equity Total Liabilties & Owners' Equity 200 700 1400 Income Statement for this year Net Sales Cost of Goods Sold Depreciation Expense General & Administrative Expenses Earnings before interest and taxes (EBIT) Interest Expense Earnings before taxes (EBT) Taxes (34) NET INCOME 1000 500 50 130 320 50 270 91.8 178.2. Dividends Addition to Retained Earnings 58.8 119.4