Following are Noso Textile€™s 2009 financial statements.
a. Suppose 2010 sales are projected to increase by 15 percent over 2009 sales. Determine the additional funds needed. Assume that the company was operating at full capacity in 2009, 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 projected balance sheet method to develop a pro forma balance sheet and income statement for December 31, 2010. (Do not incorporate any financing feedback effects. Use the pro forma income statement to determine the addition to retained earnings.)

Noso Textile: Income Statement for December 31, 2009 ($ thousands)

Sales............................................................................. $ 36,000
Operating costs........................................................... (32,440)
Earnings before interest and taxes............................ $ 3,560
Interest............................................................................. ( 560)
Earnings before taxes................................................. $ 3,000
Taxes (40%)................................................................... ( 1,200)
Net income................................................................... $ 1,800
Dividends (45%).............................................................. $ 810
Addition to retained earnings....................................... $ 990

b. Use the financial statements developed in part a to incorporate the financing feedback as a result of the addition to notes payable. (That is, do the next financial statement iteration.) For the purpose of this part, assume that the notes payable interest rate is 10 percent. What is the AFN for this iteration?

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Noso Textile: Balance Sheet as of December 31, 2009 ($ thousands) Cash Receivables $ 1,080 6,480 Accounts payable Accruals Notes payable Current liabilities $ 4,320 2,880 2,100 Inventories Current assets Net fixed assets 9,000 $16,560 12,600 $ 9,300 3,500 3,500 Long-term bonds Common stock Retained eamings Total liabilities and equity 12,860 Total assets $29,160 $29,160