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	$8	Accounts payable	$6
Accounts receivable	12	Accrued wages	5
Inventory	21	Accrued taxes	4
Current assets	$41	Current liabilities	$15
Capital assets	41	Long-term debt	15
		Common stock	20
		Retained earnings	32
Total assets	$82	Total liabilities and shareholder's equity	$82

The firm has an aftertax profit margin of 3 percent and a dividend payout ratio of 20 percent.

a. If sales grow by 10 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)  Accounts receivable  Prepaid expenses  Cash  Capital Asset  Inventory	$	(Click to select)  Common stock  Accrued taxes  Retained earnings  Accrued wages  Accounts payable	$
(Click to select)  Prepaid expenses  Cash  Accounts receivable  Inventory  Capital Asset		(Click to select)  Accrued wages  Retained earnings  Accounts payable  Common stock  Long-term debt
(Click to select)  Cash  Gross plant  Prepaid expenses  Accounts receivable  Inventory		(Click to select)  Accrued taxes  Retained earnings  Accounts payable  Common stock  Long-term debt
Current assets	$	Current liabilities	$
(Click to select)  Accrued wages  Cash  Capital Assets  Accounts Receivable  Inventory		(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