The main topics that the midterm will focus on are forecasting financial statements $($Income Statement and Balance Sheet$)$; identifying and eliminating financial surpluses or deficits; the AFN $($additional funds needed$)$ equation; the impact of improved operating ratios on forecasted financial statements; value$-$based management $($there will be a question similar to Question J of the Chapter $13$ minicase$)$; financial ratios and what they mean $($ROE$,$ ROA, ROIC, various turnover ratios, DSO, cash conversion cycle, operating cycle, Operating Profit, Capital Requirement, EROIC, FCF$,$ etc.$)$; and corporate governance. Here are a couple of sample questions to give you a feel for what will be on the midterm: INCOME STATEMENT$20232024$ Forecast$2024$ ImprovedNet sales$$2,500,000$ Cost of Goods Sold$$2,100,000$ Gross Profit$$400,000$ SGA$$175,000$ Depreciation$$75,000$ Total Operating Costs$$2,350,000$ Earnings before interest and taxes $($EBIT$)$$$150,000$ Less interest$$35,000$ Earnings before taxes $($EBT$)$$$115,000$ Taxes $(25\%)$$$28,750$ Net Income Available to Common Shareholders$$86,250$ Common Dividends$$37,000$ Addition to retained earnings$$49,250$ BALANCE SHEET$20232024$ Forecast$2024$ ImprovedAssets Cash and equivalents$$15,000$ Short$-$term investments$--$ Accounts receivable$$215,000$ Inventories$$360,000$ Total current assets$$590,000$ Net plant and equipment$$1,500,000$ Total assets$$2,090,000$ Liabilities and equity$2023$ Accounts payable$$95,000$ Accruals$$190,000$ Notes payable$$175,000$ Total current liabilities$$460,000$ Long$-$term bonds$$750,000$ Total Liabilities$$1,210,000$ Common Stock$$170,000$ Retained Earnings$$710,000$ Total Equity$$880,000$ Total Liabilities and Equity$$2,090,000$ Question $1$:Using the above financial statements, forecast the $2024$ Income Statement and Balance Sheet with a $5\%$ expected growth rate in sales. Assume that the company is operating at full capacity. Any additional funding deficit will be satisfied using Notes Payable and any additional funding surplus will be used to issue a Special Dividend. The interest on long$-$term debt is $4\mathrm{.}25\%$ and the interest on Notes Payable is $2\mathrm{.}5\%.$ The company is using a $7\mathrm{.}5\%$ dividend growth rate. $($Use the $2024$ Forecast column to answer this question$).$Question $2$:If the company improves its operations by reducing its Inventory Intensity to $12\%,$ how will the forecasted financial statements be affected $($assume sales remain in line with projections$)?$ How will this affect various relevant financial ratios? Provide explanations for your answers. $($Use the $2024$ Improved column to answer this question$).$