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Longbranch is expecting a 20 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in
Longbranch is expecting a 20 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in sales is expected to be carried out without any expansion of capital assets; instead, it will be done through more efficient asset utilization in the existing stores. The Dividends Payout Ratio remains unchanged and forecasted taxes are $24,400.
- Using a percentofsales method, determine whether Longbranch Western Wear has external financing needs.
- Prepare a pro forma income statement and balance sheet with any financing adjustment made to notes payable, i.e. including the external financing needs (the plug). If external financing is not required, excess funds are first used to reduce notes payable with the difference going towards reducing long-term debt.
- Calculate the current ratio and total debt-to-assets ratio for each year.
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