BALANCE SHEET	2021	2022 Forecast	2022 Improved
Assets
Cash and equivalents	$15,000
Short-term investments	--
Accounts receivable	$215,000
Inventories	$360,000
Total current assets	$590,000
Net plant and equipment	$1,500,000
Total assets	$2,090,000
Liabilities and equity	2021
Accounts payable	$95,000
Accruals	$190,000
Notes payable	$175,000
Total current liabilities	$460,000
Long-term bonds	$750,000
Total Liabilities	$1,210,000
Common Stock	$170,000
Retained Earnings	$710,000
Total Equity	$880,000
Total Liabilities and Equity	$2,090,000

Question 1:

Using the above financial statements, forecast the 2022 Income Statement and Balance Sheet with a 5% expected growth rate in sales. Assume that the company is operating at full capacity. Any additional funding deficit will be satisfied using Notes Payable and any additional funding surplus will be used to issue a Special Dividend. The interest on long-term debt is 4.25% and the interest on Notes Payable is 2.5%. The company is using a 7.5% dividend growth rate. (Use the 2022 Forecast column to answer this question).

Question 2:

If the company improves its operations by reducing its Inventory Intensity to 12%, how will the forecasted financial statements be affected (assume sales remain in line with projections)? How will this affect various relevant financial ratios? Provide explanations for your answers. (Use the 2022 Improved column to answer this question).