Pro forma balance sheet Peabody & Peabody has 2015 sales of $10 million. It wishes to analyze expected performance and financing needs for 2017, which is 2 years ahead. Given the following information, respond to parts a and b. (1) The percents of sales for items that vary directly with sales are as follows: Accounts receivable, 12% Inventory, 18% Accounts payable, 14% Net profit margin, 3% (2) Marketable securities and other current liabilities are expected to remain unchanged. (3) A minimum cash balance of $480,000 is desired. (4) A new machine costing $650,000 will be acquired in 2016, and equipment costing $850,000 will be purchased in 2017. Total depreciation in 2016 is forecast as $290,000, and in 2017 $390,000 of depreciation will be taken. (5) Accruals are expected to rise to $500,000 by the end of 2017. (6) No sale or retirement of long-term debt is expected. (7) No sale or repurchase of common stock is expected. (8) The dividend payout of 50% of net profits is expected to continue. (9) Sales are expected to be $11 million in 2016 and $12 million in 2017. (10) The December 31, 2015, balance sheet follows.

Peabody & Peabody Balance Sheet December 31, 2015 ($000) Assets: Cash $400 Market securities 200 Accounts recievable 1,200 inventories 1,800 Total Current assets 3,600 Net fixed assets 4,000 Total Assets $7,600

Liabilities and stockholders' equity: Accounts payable $ 1,400 Accruals 400 Other current liabilities 80 Total current liabilities $1,880 Long term debt 2,000 total liabilities 3,880 common equity 3,720 Total liabilities and stockholders' equity: $7,600

a. Prepare a pro forma balance sheet dated December 31, 2017. b. Discuss the financing changes suggested by the statement prepared in part a.