Georges Tech, Inc. (GTI) is a new company the start of which has been internally funded. GTIs owners are projecting significant Sales growth over the next two years, and realize that external funds will be necessary to support that expansion, but they are not sure how much funding will be required. The owners believe that the Additional Funding Needed (AFN) formula and methodology can be adapted to their business model to help them predict asset and funding requirements. Last years Sales were $750,000 (the last year which was funded internally). Last years ACTUAL Balance Sheet is shown below.

Balance Sheet (in THOUSANDS)

Current Assets and IP 800 Operating Current Liabilities 400

Short Term Bank Loan 50

Total Current Liabilities 450

Personal Loans 350

Equipment 200 Net Equity Contributions 200

Total Assets 1,000 Total Liab & Equity 1,000

Information extracted from GTI Business Plan:

GTIs has revised its business plan based on an analysis of requirements used to support past Sales; economies of scale and improved efficiencies, market analysis, customer feedback, potential investor inquiries and review of industry standards. GTIs business is current and intangible asset intensive. To grow Sales and create value, GTI will have to expand staff, invest heavily in marketing and R & D, increase technology capabilities, and finalize an Intellectual Property (IP) development and protection program. The Net Equity Contributions on the Balance Sheet include operating losses to date.

Operational and Asset Projections:

GTI expects Sales to increase to $1,125,000 next year and to double to $2,225,000 in Year 2. Founders expect that GTI will only have to buy $50,000 in Equipment to support the projected increased Sales; but they predict that the firms investment in Current Assets will increase by $.70 for every $1.00 in Sales growth. The company expects a NET LOSS next year of 20% of Sales Next Year and a NET PROFIT of 10% in Year 2. Due to increase purchases and payroll, GTI predicts that Operating Liabilities will grow by $.15 for each $1.00 in New Sales.

1) By how much will Operating Current Liabilities increase over the two year forecasting period? (1)

2) What is the AGGREGATE Profit or Loss for the 2 year period? (1)

3) If the owners will make an additional $100,000 in Personal Loans during the 2 year period, what is the Total Amount of ADDITIONAL (external) FUNDING NEEDED (AFN) to support the companys projected Sales growth over the next two years? (5)

Assets/Sales *( Sales)CL/Sales *( Sales)(NP/Sales)(Total Sales)

Extra Credit (1 point)

Prepare a Pro forma Balance Sheet at the end of the 2 year period: (Must be complete for any additional credit)