Assume that Fake Stone, Inc. is operating at full capacity. Also assume that assets, costs, and current liabilities vary directly with sales. The dividend payout ratio is constant. The Company’s sales manager estimates that sales will increase by 12% next year.

a) Prepare a pro-forma balance sheet

b) What are the external financing needs under these assumptions? 

Fake Stone, Inc. Income Statement Net sales $23,600 Cost of goods sold 14,870 Depreciation 2,800 Earnings before interest and taxes 5,930 Interest paid 670 Taxable income $5,260 Taxes Net income 1,840 $3.420 Dividends $1,368