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 Companys 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 Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes Net income $23,600 14,870 2.800 5,930 670 $5,260 1840 $3,420 Dividends $1,368