The balance sheet of the Jackson Company is presented below:

Jackson Company Balance Sheet

March 31, 2014

(Millions of Dollars)

Current assets $12 Accounts payable $6

Fixed assets 18 Long-term debt 12

Total $30 Common equity 12

Total $30

For the year ending March 31, 2014, Jackson had sales of $35 million. The common stockholders received all net earnings of the firm in the form of cash dividends, leaving no funds from earnings available to the firm for expansion (assume that depreciation expense is just equal to the cost of replacing worn-out assets).

Construct a pro forma balance sheet for March 31, 2015 for an expected level of sales of $45 million. Assume current assets and accounts payable vary as a percent of sales, and fixed assets remain at the present level. Use notes payable as a source of discretionary financing. (3 pts.)

4) Explain and give examples of spontaneous financing. (1 pt.)

5) Explain, giving examples, discretionary financing. (1 pt.)

6) Explain the difference between operating lease and capital lease. (2 pts.)

7) Discuss 2 reasons why companies engage in mergers. (2 pts.)