The Longbranch Western Wear Company has the following financial statements, which are representative of the companys historical average.

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. Of liabilities, only current liabilities vary directly with sales.

a. Using a percent-of-sales method, determine whether Longbranch Western Wear has external financing needs. (Input the amount as a positive value.)

THE FIRM HAS $7600 IN SURPLUS FUNDS.

b. Prepare a pro forma balance sheet with any financing adjustment made to notes payable and excess, if any, shall reduce long-term debt. (Input all answers as positive values. Be sure to list the assets and liabilities in order of their liquidity. Do not leave any empty spaces; input a 0 wherever it is required.)

c. Calculate the current ratio and total debt to assets ratio for each year. (Round the final answers to 2 decimal places.)

\begin{tabular}{lrlr} & \multicolumn{2}{c}{BalanceSheetAssets} & \multicolumn{1}{c}{ Liabilities and Shareholders' Equity } \\ Cash & $5,000 & Accounts payable & $5,000 \\ Accounts receivable & 10,000 & Accrued wages & 1,000 \\ Inventory & 15,000 & Accrued taxes & 2,000 \\ Current assets & $30,000 & Current liabilities & $8,000 \\ Capital assets & 70,000 & Notes payable & 7,000 \\ & & Long-term debt & 15,000 \\ & & Common stock & 20,000 \\ & & Retained earnings & 50,000 \\ \hline Total assets & & $100,000 \\ \hline \end{tabular} ProfitmarginPayoutratio=SalesEarningsaftertaxes=$200,000$20,000=0.10=10%=EarningsDividends=20,000$10,000=0.50=50% Change in sales =20%$200,000=$40,000 Spontaneous assets = Current assets = Cash + Accounts receivable + Inventory Spontaneous liabilities = Accounts payable + Accrued ( wages + taxes) RequiredNewFunds=S1A(S)S1L(S)PS2(1D) RNF=20030($40,000)20080($40,000)0.10($240,000)(10.50)RNF=0.15($40,000)0.04($40,000)0.10($240,000)(0.50)RNF=$6,000$1,600$12,000RNF=($7,600) \begin{tabular}{|c|c|} \hline Income Statement & \\ \hline Sales & $200,000 \\ \hline Expenses & 158,000 \\ \hline Earnings before interest and taxes & $42,000 \\ \hline Interest & 2,000 \\ \hline Earnings before taxes & $40,000 \\ \hline Taxes & 20,000 \\ \hline Earnings after taxes & $20,000 \\ \hline Dividends & $10,000 \\ \hline \end{tabular} \begin{tabular}{l|r|r|} & Year 1 & \multicolumn{2}{c|}{ Year 2 } \\ Current ratio & 3.75 & 3.75 \\ Total debt/ assets & 30% & 22.64 \\ \hline \end{tabular}