CASE 1 (35 points)

The most recent financial statements for Majestic Corporation follow. Sales for 2020 are projected to increase by 15 percent. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant dividend pay-out ratio. The firm is operating at full capacity and no new debt or equity is issued.

2019 Income Statement			Balance Sheet as at 31 December 2019
Sales Costs Taxable income Taxes (25%) Net income Dividends	7,900 5,500 2,400 600 1,800 720		Current assets Fixed assets Total assets	3,900 8,600 12,500	Current liabilities Long-term debt Equity Total liabilities & equity	2,100 3,700 6,700 12,500

Instructions:

1. Prepare Proforma Income Statement for 2020. Calculate Dividends and Addition to retained earnings in 2020. (10 points)

2. Prepare Proforma Balance Sheet for 2020. (10 points)

3. Calculate the amount of external financing needed in 2020. What financing options are available for the company? (5 points)

4. Assuming that the company operated at 90% capacity in 2019, re-calculate Proforma Total Assets in 2020. (5 points)

5. Discuss the role of financial planning. (5 points)