Executive Fruit's financial manager believes that sales in 2015 could rise by as much as 20% or by as little as 5%.
a. Recalculate the first-stage pro forma financial statements (Table 18.5) under these two assumptions. How does the rate of growth in revenues affect the firm's need for external funds?

b. Assume any required external funds will be raised by issuing long-term debt and that any surplus funds will be used to retire such debt. Prepare the completed (second-stage) pro forma balance sheet.

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PRO FORMA INCOME STATEMENT, 2015 Revenue Cost of goods sold EBIT Interest Earnings before taxes State and federal tax Net income Dividends Additions to retained earnings $2,200 1,980 220 40 180 72 $ 108 S 72 $ 36 Comment 10% higher 10% higher 10% higher Unchanged EBIT - interest 40% of (EBIT-interest) EBIT-interest-taxes 2/3 of net income Net income - dividends PRO FORMA BALANCE SHEET (Year-end, 2015) Assets Net working capital Fixed assets Total assets 220 880 $1,100 10% higher 10% higher 10% higher Liabilities and shareholders' equity Long-term debt Shareholders' equity 400 Temporarily held fixed 636 Increased by earnings reinvested during year Sum of debt plus equity Balancing item or plug $1,100-$1,036) Total liabilities and shareholders' equity $1,036 $ 64 Required external financing