a. If a percentage of sales method is used to forecast financial statements, which line items can be expected to grow approximately with the sales, and which ones are not?

b. Using the percent of sales method, forecast the external financing needs for 2008 (ignore how financing is raised, i.e., focus on the first pass) assuming payout ratio is 50%.

Income Statement for the year ending December 31 (Millions of Dollars) 2007 Net sales $800.0 Operating costs (except depreciation) 576.0 Depreciation 60.0 Earnings before interest and taxes (EBIT) $164.0 Less interest 32.0 Earnings before taxes $132.0 Taxes (40%) 52.8 Net income available for common stockholders $79.2 Number of shares (in millions) 10 Balance Sheet for December 31 (Millions of Dollars) 2007 2007 Assets Liabilities and Equity Cash $8.0 Accounts payable $16.0 Marketable securities 20.0 Notes payable 40.0 Accounts receivable 80.0 Accruals 40.0 Inventories 160.0 Total current liabilities $96.0 Total current assets 268.0 Long-term bonds 310.0 Net Property, Plant and equipment 600.0 Common Stock 202.0 Retained Earnings 260.0 Total Assets 868.0 Total Liabilities and Equity 868.0 Further, the ratios and selected information for the current and 2008 (next fiscal year) are shown below. Actual Projected 2007 2008 Sales growth rate 15% Operating Costs/Sales 72% 60% Depreciation/Net PPE 10 10 Cash/Sales 1 1 Accounts Receivable/Sales 10 10 Inventories/Sales 20 20 Net PPE/Sales 75 75 Accounts payable/Sales 2 2 Accruals/Sales 5 5 Tax rate 40 40