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

Income Statement

Sales $250,000

Expenses 203,200

Earnings before interest and taxes$46,800

Interest 2,300

Earnings before taxes $44,500

Taxes 12,000

Earnings after taxes $32,500

Dividends $9,750

Balance Sheet

Assets Liabilities and Shareholders' Equity

Cash $5,000 Accounts payable $6,300

Accounts receivable13,000 Accrued wages 1,500

Inventory 18,000 Accrued taxes 4,200

Current assets $36,000 Current liabilities $12,000

Capital assets 73,000 Notes payable 7,300

Long-term debt 16,500

Common stock 23,000

Retained earnings 50,200

Total assets$ 109,000 Total liabilities and equity $109,000

Western Rail 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. (Show all your workings and calculations)

a. Using a percent-of-sales method, determine whether Western rail has external financing needs.

b. Prepare a pro forma balance sheet with any financing adjustment made to notes payable and excess, if any, shall reduce long term debt. (Do not round off intermediate value. Use two decimals for final answer)