Cary Corporations forecasted financial statements for next year follow, along with industry average ratios. Cary Corporation: Forecasted Balance Sheet as of December 31 Cash $ 72,000 Accounts and notes payable $ 432,000 Accounts receivable 439,000 Accruals 170,000 Inventories 894,000 Total current liabilities $ 602,000 Total current assets $1,405,000 Long-term debt 404,290 Land and building 238,000 Common stock 575,000 Machinery 132,000 Retained earnings 254,710 Other fixed assets 61,000 Total assets $1,836,000 Total liabilities and equity $1,836,000 Cary Corporation: Forecasted Income Statement Sales $4,290,000 Cost of goods sold (3,580,000) Gross operating profit $ 710,000 General administrative and selling expenses ( 236,320) Depreciation ( 159,000) Miscellaneous ( 134,000) Earnings before taxes (EBT) $ 180,680 Taxes (40%) ( 72,272) Net income $ 108,408 Number of shares outstanding 23,000 Per-Share Data EPS $ 4.71 Cash dividends per share $ 0.95 P/E ratio 5.0 Market price (average) $23.57 Industry Financial Ratios Quick ratio 1.0 Current ratio 2.7 Inventory turnoverb 5.8 Days sales outstanding 32 days Fixed assets turnoverb 13.0 Total assets turnoverb 2.6 Return on assets 9.1% Return on equity 18.2% Debt ratio 50.0% Profit margin on sales 3.5% P/E ratio 6.0 aIndustry average ratios have been constant for the past four years. bBased on year-end balance sheet figures.

c. Suppose Cary Corporation is considering installing a new computer system that would provide tighter control of inventories, accounts receivable, and accounts payable. If the new system is installed, the following data are projected (rather than the data given earlier) for the indicated balance sheet and income statement accounts: Accounts receivable $ 395,000 Inventories $ 700,000 Other fixed assets $ 150,000 Accounts and notes payable $ 275,000 Accruals $ 120,000 Cost of goods sold $3,450,000 Administrative and selling expenses $ 248,775 P/E ratio 6.0 How do these changes affect the projected ratios and the comparison with the industry averages? (Note that any changes to the income statement will change the amount of retained earnings; therefore, the model is set up to calculate next years retained earnings as this years retained earnings plus net income minus dividends paid. The model also adjusts the cash balance so that the balance sheet balances.)