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Financial forecastingdiscretionary financing needs) The most recent balance sheet for the Armadillo Dog Biscuit Co. Inc. is shown in the following table: The company is about to embark on an advertising campaign, which is expected to raise sales from the current level of $5 million to $1 milion by the end of next year. The firm is currently operang at full capacly and will have to increase its investment in both current and fixed assets to support the projected level of new sales. In fact, the fimm estimates that both categories of assets will rise in direct proportion to the projected increase in sales The firm's net profits were 5 percent of the current year's sales but are expected to rise to 6 percent of next year's sales. To help support its anticipated growth in asset needs next year, the firm has suspended plans to pay cash dividends to its stockholders. In past years a $1.60 pershare dividend has been paid annually. Armadillo's accounts payable and accrued expenses are expected to vary directly with sales. In addition, notes payable will be used to supply the funds needed to finance next year's operations that are not forthcoming from other sources a Fil in the table and projnct the firm's needs for discretionary financing Utenotos payable as the balancing entry for future discretionary financing needs b. Compare Armadillo's current ratio and debt raio (total abilities total assets) before the growth in and after. What was the effect of the expanded soles on these two dimensions of Armadillo's fnancial condition? c. What difference, if any, would have resulted Amadio's sales had risen to $6 million in tyew and $7 million only after 2 years? Discuss only, no calculations are required. PERCENT OF SALES PROJECTED LEVEL Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $2.2 Total $5.0 a. Fil in the table and project the firm's needs for discretionary Francing Use notos payable as the balancing entry for future sacretionary financing needs (Round to no decimal place) PERCENT OF SALES PROJECTED LEVEL Armadillo Dog Biscuit Co. Inc. (5 Millions) PRESENT LEVEL Current assets $20 Not food assets 30 Total $5.0 Accounts payable 504 Accrued expense 04 Notos payable 0 Current abilities $0.8 Long-term debit $20 Common stock 0.6 Retained eaming Common equity 522 Total $50 $2.0 PERCENT OF SALES 40.0% PROJECTED LEVEL $2.8 Armadillo Dog Biscuit Co. Inc. (5 Millions) PRESENT LEVEL Current assets Not fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Curront liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $22 Total $5.0 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.9 Common stock 0.6 Retained earings 1.6 Common equity $2.2 Total $5.0 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 $7.0 0% Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense Notes payable 0 Current liabilities Long-term debt $2.0 Common stock 0.6 Retained eamings 1.6 Common equity $2.2 Total $5.0 0,4 $0.8 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 42 $7.0 $0.6 8.0% Armadillo Dog Biscuit Co. Inc. (s Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $2.2 Total $5.0 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 $7.0 $0.6 0.6 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 30 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock Retained earnings 1.6 Common equity $2.2 Total $5.0 0.6 $2.0 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 $7.0 $0.6 0.6 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. (s Millions) PRESENT LEVEL Current assets Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earings 1.6 Common equity $2.2 Total $5.0 $2.0 $2.0 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 $7.0 $0.6 0.6 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $22 Total $5.0 $2.0 0.6 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 4.2 $7.0 $0.6 0.6 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. (s Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings. 1.6 Common equity $2.2 Total $5.0 $2.0 0.6 2.0 NO PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 42 $7.0 $0.6 0.6 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. ($ Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1,6 Common equity $2.2 Total $5.0 $2.0 0.6 2.0 2.6 PERCENT OF SALES 40.0% 60.0% PROJECTED LEVEL $2.8 42 8.0% 8.0% $7.0 $0.6 0.6 Armadillo Dog Biscuit Co. Inc. (5 Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $22 Total $5.0 $2.0 0.6 2.0 2.6 $7.0 PERCENT OF SALES 40.0% 60.0% 8.0% 8.0% Armadillo Dog Biscuit Co. Inc. (s Millions) PRESENT LEVEL Current assets $2.0 Net fixed assets 3.0 Total $5.0 Accounts payable $0.4 Accrued expense 0.4 Notes payable 0 Current liabilities $0.8 Long-term debt $2.0 Common stock 0.6 Retained earnings 1.6 Common equity $22 Total $5.0 PROJECTED LEVEL $2.8 4.2 $7.0 $0.6 0.6 1.2 $ $2.0 0.6 2.0 2.6 $7.0 NN b. Compare Armadio's current ratio and debt ratio before the growth in sales and after. What was the alfect of the expanded sales on these two dimensions of Armadilo's financial conditon? What is the present current ratio? (Round to two decimal places) What is the projected current ratio? Round to two decimal places) What is the present debt ratio? DX (Round to two decimal places) What is the projected debt ratio? 1% (Round to two decimal places.) The growth in the firm's assets (due to the projected increase in sales) was financed predominately with other payable (a current liability which lead to a in the firm's luidty and a in the firm's use of financial leverage (Select from the drop down menus) c. What difference, If any, would have resulted it Amadillo's sales had risen to $6 milion in 1 year and $7 million only after 2 years? if sales had grown slower, then Armadillo would have been able to finance a portion of the funds needed using retained camins rather than notos payable. This would have resulted in less of an in the current ratio and less of an) in the debt roti (Select from the drop-down menus)