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In November of each year, the CFO of Barker Electron - ics begins the financial forecasting process to deter - mine the firm's projected needs

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 ElectronicsBarker Electronics
Income Statement ($ thousands) for the Year Ended
December 31,2016
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.
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