A firm has the following balance sheet as of December 31, 2008:

ASSET LIABILITIES AND EQUITY

Cash $100 Accounts Payable $300

Accounts Receivable 300 Long-term debt 800

Inventory 400 Equity 400

Plant 700 Retained Earnings 0

$1,500 $1,500


Currently sales are $4,000 with a net profit margin of 15 percent; dividend payout ratio is 40%. Management expects sales to increase to $5,000 and wants to determine if the firm will need external financing to cover this expansion.

Construct a forecasted balance sheet for sales of $5,000 using the percent of sales technique of forecasting assets and liabilities that spontaneously vary with sales. Assume that cash does not increase with the increase in sales. If this assumption were not made, would your answer be different?