Rainbow Company’s balance sheet is as follows:

Current level of sales is $450,000 and is expected to grow up to $600,000

a. Develop a proforma balance sheet for the firm if net fixed assets, bonds payable, and common equity remain the same. Assume Rainbow Company will distribute all net income as dividends, and the rest of balance sheet will vary according to sales.

b. What is a need for “new” financing?

c. What are the limitations of assumptions and percentage of sales method?

Transcribed Image Text:

Current assets Net fixed assets Total $150,000 450,000 $600,000 Accounts payable Notes payable Bonds payable Common equity Total $250,000 15,000 320,000 15,000 $600.000