The most recent balance sheet or the Armadillo Dog Biscuit Company is shown in the table below. The company is about to embark on an advertising campaign which is expected to raise sales from the current level of $5 million to $7 million by the end of next year. The firm is currently operating at full capacity and will have to increase its investment in both current and fixed assets to support the level of new sales. In fact, the firm estimates that both categories will rise in direct proportion to the projected increase in sales.

The firms net profits were 6 percent of current years sales but are expected to rise to 7 percent of next years sales. To help support its anticipated growth in asset needs next year, the firm has suspended plans to pay cash dividends to its stockholders. In past years a $1.50 per share dividend has been paid annually.

Armadillo Dog Biscuit Company ($ millions)

Present Percent Projected

Level of Sales Level

Current Assets $ 2.0

Net Fixed Assets 3.0

Total $ 5.0

Accounts Payable $ 0.5

Accrued Expenses 0.5

Notes Payable --

Current Liabilities $ 1.0

Long-term debt $ 2.0

Common Stock 0.5

Retained Earnings 1.5

Total $ 5.0

Armadillos payables and accrued expenses are expected to vary directly with sales. In addition, notes payable will be used to supply the funds that are needed to finance next years operations and that are not forthcoming from other sources. Fill in the table and project the firms needs for external financing. Use notes payable as the balancing entry for financing needed.