You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 25% increase in sales. Days sales outstanding are expected to improve to 90. With respect to inventory and accounts payable, assume that purchases will be $8,500,000 and cash payments will be $8,800,000. Operations are running at 75% of capacity and have recently been streamlined. Accordingly, gross profit margins are expected to be 11% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 40%. For ease of calculation, assume interest expense remains the same. Prepare pro-forma financial statements and determine the amount of borrowing needs, which will be reflected in long-term debt.

Cash	200,000		Sales	7,500,000
Accts receivable	2,500,000		Cost of sales	6,750,000
Inventory	1,800,000		Gross profit	750,000
Total current assets	4,500,000		Other expenses	250,000
Fixed assets	400,000		EBIT	500,000
Total assets	4,900,000		Interest	100,000
			EBT	400,000
Accounts Payable	1,200,000		Taxes (40%)	160,000
Long-term debt	700,000		Net income	240,000
Total debt	1,900,000
Common stock	2,300,000
Retained Earnings	700,000
Total debt & equity	4,900,000

Answer below:

Cash	250,000		Sales	9,375,000
Accts receivable	2,311,644		Cost of sales	8,343,750
Inventory	1,956,250		Gross profit	1,031,250
Total current assets	4,517,894		Other expenses	312,500
Fixed assets	400,000		EBIT	718,750
Total assets	4,917,894		Interest	100,000
			EBT	618,750
Accounts Payable	900,000		Taxes (40%)	247,500
Long-term debt	869,394		Net income	371,250
Total debt	1,769,394
Common stock	2,300,000
Retained Earnings	848,500
Total debt & equity	4,917,894

Full capacity sales = 7,500,000/.75 = 10,000,000; Projected Sales < 10,000,000 no new Fixed assets needed

Please explain process to getting to the answer.