Clyde$$s Well Servicing has the following financial statements. The balance sheet items, profit margin, and dividend payout have maintained the same relationships the past couple of years; these relationships are anticipated to hold in the future. Clyde$$s has excess capacity, so there is no expected increase in capital assets.

Income Statement

Sales $$2,000,000$

Cost of goods sold $1,260,000$

Gross profit $740,000$

Selling and administrative expense $400,000$

Amortization $55,000$

Earnings before interest and taxes $285,000$

Interest $50,000$

Earnings before taxes $235,000$

Taxes $61,000$

Earnings available to common shareholders $$174,000$

Dividends paid $$104,000$

Balance Sheet

Assets Liabilities and Shareholders' Equity

Cash $$30,000$ Accounts payable $$105,000$

Accounts receivable $260,000$ Accruals $20,000$

Inventory $210,000$ Bank loan $150,000$

Current assets $500,000$ Current liabilities $275,000$

Capital assets $550,000$ Long$-$term debt $200,000$

Common stock $175,000$

Retained earnings $400,000$

Total assets $$1,050,000$ Total liabilities and equity $$1,050,000$

a$.$ Using a percent$-$of$-$sales method, determine whether Clyde$$s can handle a $30$ percent sales increase without using external financing. If so$,$ what is the need?

The firm

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$

in

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b$.$ If the average collection period of receivables could be held to $43$ days, what would the need be for external financing? All other relationships remain the same. $($Negative answer should be indicated by a minus sign.$)$

New funds required $($surplus$)$ $

Suppose the following results with the increased sales of $$600,000.$ The first $$75,000$ of any new funds would be short$-$term debt and then long$-$term debt.

Income Statement

Cash increases by $$5,000$

Average collection period $43$ days

Inventory turnover $($COGS$)6$ X

Capital assets increase by $$125,000$

Accounts payable increase in proportion to sales

Accruals No change

Long$-$term debt decreases by $$25,000$

Gross profit margin $40\%$

Selling, general, and administrative expense increase by $$50,000$

Amortization increases by $$12,500$

Interest decreases by $$10,000$

Tax rate $35\%$

Dividends increase to $$120,000$

c$-1.$ What new funds would be required? $($Enter your answers in thousands, rounded to $2$ decimal places.$)$

New funds required $

c$-2.$ Prepare the pro forma balance sheet. $($Input all answers in thousands. Be sure to list the assets and liabilities in order of their liquidity. Round the final answer to $1$ decimal place. $)$

Balance Sheet

$($$ thousands$)$

Assets Liabilities and Equity

Cash

$

$35$

Accounts payable

$

Accounts receivable

Accruals

Inventory

Bank loan

Current assets

Current liabilities

Capital assets

Long$-$term debt

Common stock

Retained earnings

Total assets $

Total liabilities and shareholders' equity

$