In November of each year, the CFO of Barker Electron$-$

ics begins the financial forecasting process to deter$-$

mine the firm's projected needs for new financing dur$-$

ing the coming year. Barker is a small electronics man$-$

ufacturing company located in Moline, Illinois, a city

best known as the home of the John Deere Company.

The CFO begins the process with the most recent

year's income statement, then projects sales growth

for the coming year, then estimates net income, and

finally estimates the additional earnings he can expect

to retain and reinvest in the firm. The firm's income

statement for $2016$ follows:

Barker Electronics

Income Statement $($$ thousands$)$ for the Year Ended

December $31,2016$

The electronics business has been growing rapidly

over the past $18$ months as the economy recovers,

and the CFO estimates that sales will expand by $20$

percent in the next year. Depreciation expense will

equal $$50,000,$ and interest expense is estimated to be

$$10,000.$ In addition, he estimates the following rela$-$

tionships next year between each of the income state$-$

ment expense items and sales:

Note that for the coming year both depreciation ex$-$

pense and interest expense are projected to remain

the same as in $2016.$

a$.$ Estimate Barker's net income for $2017$ and its

addition to retained earnings under the assump$-$

tion that the firm leaves its dividends paid at the

$2016$ level.

b$.$ Reevaluate Barker's net income and addition to

retained earnings where sales grow at $40$ per$-$

cent over the coming year $($assume dividends

are the same as in $2016).$ This scenario requires

the addition of new plant and equipment in the

amount of $$100,000,$ which increases annual

depreciation to $$58,000$ per year, and interest

expense rises to $$15,000.$