1. Using 2001 percentages, calculate additional funds needed, if any, from external sources for years 2002 - 2004.Assume no dividends are paid.In addition, to support sales in excess of $105 million, new equipment will have to be purchased and installed at a cost of $11 million.This will provide sufficient production capacity to support sales up to a level of $140 million.
2. Project the balance sheet for years 2002 - 2004 and check to see that the mandatory current ratio is not violated.Given this restriction, how much short-term financing, if any, could be used by CSE and maintain the required 3.50 - 1 current ratio.Assume current notes payable will be rolled-over.
3. Prior to the director's meeting, Granger and Valentine ran a simple linear regression in an attempt to predict with more accuracy the inventory levels necessary to support various levels of sales.Here is their resulting equation:

Inventories = $2,745,000 + 0.104836 (sales)

Construct a graph showing this method of inventory prediction with the percent-of-sales method.For the percent of sales, use the 2001 inventory/sales ratio.Explain which method seems more accurate and reliable upon which to base business decisions.

Table 1

Balance Sheet - in thousands

2000 2001

Assets

Cash$1,969.72$2,250.17

Accts. receivables10,146.4411,707.43

Inventory8,370.819,219,60

Current assets20,486.9723,177.20

Net fixed assets9,324.8510,354.12

Total assets29,811.8233,531.32

Liabilities & Equities

Accts. payable$3,504.31$3,726.45

Notes payable1,000.002,000.00

Accrual566.09717.95

Current liabilities5,070.406,444.40

Long-term debt8,357.508,357.50

Total liabilities13,427.9014,801.90

Common stock3,500.003,500.00

Retained earnings12,883.9215,229.42

Equities16,383.9218,729.42

Total capital29,811.8233,531.32

Table 2

Income Statement

20002001

Sales$56,195.65$70,244.56

COGS45,124.9555,559.90

Gross profits11,070.7014,684.66

G&A expenses3,371.744,214.67

Fixed op. expenses1,910.352,010.44

Depreciation1,909.912,120.72

Miscellaneous702.73772.41

Total op. expenses7,894.739,118.24

EBIT3,175.975,566.42

Interest1,122.901,222.90

EBT2,053.074,343.52

Taxes944.411,998.02

Net income1,108.662,345.50