Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December $31,2021,$ is shown here $($millions of dollars$)$:

Cash $ $3\mathrm{.}5$ Accounts payable $ $9\mathrm{.}0$

Receivables $26\mathrm{.}0$ Notes payable $18\mathrm{.}0$

Inventories $58\mathrm{.}0$ Line of credit $0$

Total current assets $ $87\mathrm{.}5$ Accruals $8\mathrm{.}5$

Net fixed assets $35\mathrm{.}0$ Total current liabilities $ $35\mathrm{.}5$

Mortgage loan $6\mathrm{.}0$

Common stock $15\mathrm{.}0$

Retained earnings $66\mathrm{.}0$

Total assets $$122\mathrm{.}5$ Total liabilities and equity $$122\mathrm{.}5$

Sales for $2021$ were $$200$ million, and net income for the year was $$6$ million, so the firm's profit margin was $3\mathrm{.}0\%.$ Upton paid dividends of $$2\mathrm{.}4$ million to common stockholders, so its payout ratio was $40\%.$ Its tax rate was $25\%,$ and it operated at full capacity. Assume that all assets$/$sales ratios, $($spontaneous liabilities$)/$sales ratios, the profit margin, and the payout ratio remain constant in $2022.$ Do not round intermediate calculations.

If sales are projected to increase by $$40$ million, or $20\%,$ during $2022,$ use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $$10,550,000$ should be entered as $10\mathrm{.}55.$ Round your answer to two decimal places.

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million

Using the AFN equation, determine Upton's self$-$supporting growth rate. That is$,$ what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.

$\%$

Use the forecasted financial statement method to forecast Upton's balance sheet for December $31,2022.$ Assume that all additional external capital is raised as a line of credit at the end of the year. $($Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.$)$ Assume Upton's profit margin and dividend payout ratio will be the same in $2022$ as they were in $2021.$ What is the amount of the line of credit reported on the $2022$ forecasted balance sheets? $($Hint: You don't need to forecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the $2022$ addition to retained earnings for the balance sheet without actually constructing a full income statement.$)$ Enter your answers in millions. For example, an answer of $$10,550,000$ should be entered as $10\mathrm{.}55.$ Round your answers to two decimal places.

Upton Computers

Pro Forma Balance Sheet

December $31,2022$

$($Millions of Dollars$)$

Cash $

Receivables $

Inventories $

Total current assets $

Net fixed assets $

Total assets $

Accounts payable $

Notes payable $

Line of credit $

Accruals $

Total current liabilities $

Mortgage loan $

Common stock $

Retained earnings $

Total liabilities and equity $