The management of Afro Quatro Ltd.Want to establish the amount of financial needs for the next two years .the balance sheet of the firm as at 31 December 2001 is as follows:

Sh 000

Net fixed assets124,800

Stock38,400

Debtors28,800

Cash7,200

Total assets199,200

Financed by:

Ordinary share capital84,000

Retained earnings35,200

12% long term debt20,000

Trade creditors36,000

Accrued expenses24,000

199200

For the year ended 31 December 2001 sales amounted to sh 240,000,000.The firm project that the sales will increase by 15% in the year 2002 and 20% in the year 2003.

The after tax profit on sales has been 11% but the management is pessimistic about future operating costs and intends to use an after tax profiton the sales rate of 8% per annum.

The firm tends to maintain its dividend payout ratio of 80%.Assets are expected to vary directly with sales while trade creditors

And accrued expenses form the spontaneous sources of financing.Any external financing will be effected through the use of commercial paper.

Required:

Determine the amount of external financing requirements for the next two years (7 marks)

A proforma balance sheet as at 31 December 2003. (10 marks)

State the fundamental assumption made in your computations in (a)

And (b) above(2marks)