Inhale, Inc. 2018 Income Statement
Net sales	$	18,400
Cost of goods sold		15,200
Depreciation		700
Earnings before I and T	$	2,500
Interest paid		70
Taxable Income	$	2,430
Taxes		960
Net income	$	1,470
Dividends	$	390

Inhale, Inc. 2018 Balance Sheet
	2018				2018
Cash	$	7,600		Accounts payable	$	6,840
Accounts rec.		2,200		Long-term debt		700
Inventory		8,200		Common stock	$	8,400
Total	$	18,000		Ret. Earnings		11,660
Net fixed assets		9,600
Total assets	$	27,600		Total liabilities & equity	$	27,600

Inhale, Inc., is currently operating at maximum capacity. All costs, assets, and current liabilities vary directly with sales. The tax rate and the dividend payout ratio will remain constant. In 2019, no new equity will be raised and sales are projected to increase by 10 percent. Construct the pro formas for 2019 (at first leave interest and long term debt unchanged). Then answer the following questions.

1.

Projected total assets = $______

Hint: Divide each quantity on the left-hand side of the 2018 Balance Sheet by the 2018 Sales to compute the percentages of sales. New sales in 2019 will be 10% higher than in 2018, so compute sales for 2019. Apply the percentages you computed for 2018 to the new sales number for 2019 to construct each line item on the Balance Sheet for 2018. Read off the Total Assets at the bottom.

2.

Projected 2019 Retained Earnings = $______

Hint. Proceed by constructing the Income Statement for 2019. Start with the new Sales (10% higher than 2012). Compute Cost of Goods Sold and Depreciation as percentages of sales in 2018 and apply the same percentages to 2019 Sales to get CoGS and Depr for 2019. When you get to taxes, things will be different. Compute the Taxes for 2018 as % of Taxable Income, not Sales, for 2018. Apply the same percentage to the 2019 Taxable Income to get Taxes for 2019. Similarly, compute Dividends for 2018 as % of 2018 Net Income, not Sales. Apply that percentage to the 2019 Net Income to get 2019 Dividends. The Addition to the Retained Earnings for 2019 is equal to the Net Income minus Dividends. Add the Addition to RE to the 2018 Retained Earnings from the 2018 Balance Sheet and you have the new 2019 Retained Earnings.

3.

Additional new debt required = $______

Hint: You will need the answers of Q1 and Q2, but first you need to construct the right-hand side of the 2019 Balance Sheet. First, Accounts Payable as % of sales, so apply the 2018 % of sales for A/P to the new 2019 sales. Second, leave the LT Debt unchanged. Third, leave the Common Stock unchanged. Fourth, write in the new Retained Earnings from Q2. Compute the Total right-hand side of the B/S. It does not equal to the Total Assets from Q1. The difference is the additional debt to make the B/S balance.