In the Industrial Supply Company example (Table 4.4) it was assumed that the companys fixed assets were being used at nearly full capacity and that net fixed assets would have to increase proportionately as sales increased. Alternatively, suppose that the company has excess fixed assets and that no increase in net fixed assets is required as sales are increased. Assume that the company plans to maintain its divi- dend payments at the same level in 2014 as in 2013. Determine the amount of addi- tional financing needed for 2014 under each of the following conditions:

Increase In Sales	Increase In Expenses
a. 3,750,000	3,750,000
b. 3,000,000	2,800,000
c. 4,500,000	4,000,000

Table 4.4

Industrial Supply Financial Statements

Balance Sheet	Actual December 31, 2013	Pro Forma December 31, 2013	Comments
Assets
Cash	500,000	625,000	25% Increase (assumption)
Accounts Rec.	2,000,000	2,500,000	25% Increase (assumption)
Inventories	4,000,000	5,000,000	25% Increase (assumption)
Total Current Assets	6,500,000	8,125,000
Fixed Assets, net	1,000,000	1,250,000
Total Assets (A)	7,500,000	9,375,000	25% Increase (assumption)
Liabilities and Equities
Accounts Payable (CL)	1,500,000	1,875,000	25% Increase (assumption)
Notes Payable	1,000,000	1,750,000	1,000,000 + AFN =
			1,000,000 + 750,000
Total Current liabilities	2,500,000	3,625,000
Long-term Debt	500,000	500,000	No change (assumption)
Income Statement	2013	2014
Sales (S)	15,000,000	18,750.000	25% Increase (assumption)
Expenses, including interests & taxes	14,250,000	17,750,000	Forecasted
Earnings after taxes (EAT)	750,000	1,000,000
Dividends paid (D)	250,000	250,000	No change (assumption)
Retained earnings	5000,000	750,000
Selected Financial Ratios
Current Ratio	2.60 times	2.24 Times	Decreased
Debt Ratio	40%	44%	Increased
Return on stockholders equity	16.7%	19.0%	Increased
Net Profit margin on sales	5.0%	5.33%	Increased