Stevens Textile's 2004 financial statements are shown below. Stevens Textile: Balance Sheet as of December 31, 2004 (Thousands of Dollars)

Suppose 2005 sales are projected to increase by 15 percent over 2004 sales. Determine the additional funds needed. Assume that the company was operating at full capacity in 2004, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Use the percent of sales method to develop a pro forma balance sheet and income statement for December 31, 2005. Use an interest rate of 10 percent on the balance of debt at the beginning of the year to compute interest (cash pays no interest). Use the pro forma income statement to determine the addition to retained earnings.

Cash Receivables Inventories Total current assets Net fixed assets Total assets Sales Operating costs Interest Earnings before interest and taxes Earnings before taxes $ 1,080 6,480 9,000 $16,560 12,600 Taxes (40%) Net income $29,160 Dividends (45%) Addition to retained earnings Stevens Textile: Income Statement for December 31, 2004 (Thousands of Dollars) Accounts payable Accruals Notes payable Total current liabilities Mortgage bonds Common stock Retained earnings Total liabilities and equity $36,000 32,440 $ 3,560 460 $ 3,100 1,240 $ 1,860 $ 837 $ 1,023 $ 4,320 2,880 2,100 $ 9,300 3,500 3,500 12,860 $29,160