Please show work. Do not do in excel!

Van Auken Lumbers 2013 financial statements are shown below.

a. Assume that the company was operating at full capacity in 2013 with regard to all items except fixed assets, which in 2013 were being utilized to only 75% of capacity. By what percentage could 2014 sales increase over 2013 sales without the need for an increase in fixed assets?

b. Now suppose that 2014 sales increase by 25% over 2013 sales. Use the forecasted financial statement method to forecast a 12/31/14 balance sheet and 2014 income statement, assuming that (1) the historical ratios of operating costs/sales, cash/sales, receivables/sales, inventories/ sales, accounts payable/sales, and accruals/sales remain constant; (2) Van Auken cannot sell any of its fixed assets; (3) any required financing is done at the end of 2014 as through a line of credit; (4) the firm earns no interest on its cash; and (5) the interest rate on all of its debt is 12%. Van Auken pays out 60% of its net income as dividends and has a tax rate of 40%.

What is Van Aukens financing deficit or surplus? (Hints:Assume any additional financing through the line of credit will be drawn on the last day of the year. Therefore, the line of credit will not accrue interest expense during the year because any new line of credit is added at the end of the year; also, use the forecasted income statement to determine the addition to retained earnings for use in the balance sheet.)

Van Auken Lumber: Income Statement for December 31, 2013 (Thousands of Dollars)

Sales $36,000

Operating costs 30,783

Earnings before interest and taxes $ 5,217

Interest 717 Pre-tax earnings $ 4,500

Taxes (40%) 1,800

Net income $ 2,700

Dividends (60%) $ 1,620

Addition to retained earnings $ 1,080

Van Auken Lumber: Balance Sheet as of December 31, 2013 (Thousands of Dollars)

Cash $ 1,800

Accounts payable $ 7,200

Receivables 10,800

Notes payable 3,472

Inventories 12,600

Line of credit 0

Total current assets $25,200

Accruals 2,520

Net fixed assets 21,600

Total current liabilities $13,192

Mortgage bonds 5,000

Common stock 2,000

Retained earnings 26,608

Total assets $46,800

Total liabilities and equity $46,800