Question

Cholesterol Dairy Products has plants in five provinces and operates a very large home delivery service. Sales last year were $100 million, and the balance sheet at year-end is similar in percent of sales to that of previous years (and this will continue in the future). All assets and current liabilities will vary directly with sales. Assume the firm is already using capital assets at full capacity.

Balance Sheet (in $ millions)
Assets		Liabilities and Shareholders' Equity
Cash	$5	Accounts payable	$6
Accounts receivable	10	Accrued wages	4
Inventory	25	Accrued taxes	2
Current assets	$40	Current liabilities	$12
Capital assets	40	Long-term debt	15
		Common stock	20
		Retained earnings	33
Total assets	$80	Total liabilities and shareholder's equity	$80

The firm has an aftertax profit margin of 8 percent and a dividend payout ratio of 25 percent.

a. If sales grow by 20 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Enter the answer in millions. Round the final answer to 3 decimal places.)

The firm needs $  million in external funds.

b. Prepare a pro forma balance sheet with any financing adjustment made to long term debt. (Input all answers as positive values. Be sure to list the assets and liabilities in order of their liquidity. Enter the answers in millions. Round the final answers to 3 decimal places.)

Balance Sheet ($ millions)
Assets		Liabilities and Shareholders' Equity
Current assets		Current liabilities
(Click to select)   Inventory   Capital Asset   Cash   Accounts receivable   Prepaid expenses	$	(Click to select)   Retained earnings   Accounts payable   Common stock   Accrued wages   Accrued taxes	$
(Click to select)   Inventory   Accounts receivable   Cash   Capital Asset   Prepaid expenses		(Click to select)   Accrued wages   Retained earnings   Accounts payable   Common stock   Long-term debt
(Click to select)   Prepaid expenses   Cash   Accounts receivable   Inventory   Gross plant		(Click to select)   Accrued taxes   Retained earnings   Accounts payable   Common stock   Long-term debt
Current assets	$	Current liabilities	$
(Click to select)   Accrued wages   Accounts Receivable   Inventory   Capital Assets   Cash		(Click to select)   Long-term debt   Accrued wages   Accounts payable   Accrued taxes
		(Click to select)   Common stock   Accrued wages   Accounts payable   Accrued taxes	$
		(Click to select)   Retained earnings   Accrued wages   Accounts payable   Accrued taxes
Total assets	$	Total liabilities and shareholders' equity	$

c. Calculate the current ratio and total debt to assets ratio for each year. (Round the final answers to 2 decimal places.)

	Year 1	Year 2
Current ratio	X	X
Total debt / assets	%	%

Answer 1