6. You are preparing to discuss borrowing needs with your bank's loan officer who asks you to prepare pro-forma financial statements. Below are the financial statements for the year just ended. Your sales department is projecting a 50% increase in sales. Days sales outstanding are expected to improve to 50. With respect to inventory and accounts payable, assume that purchases will be $11,000,000 and cash payments will be $10,500,000. The Company expects to invest $2,000,000, net of any depreciation, to expand its storage capacity and achieve scale savings. Accordingly, gross profit margins are expected to be 20% in the future. Other expenses are expected to remain the same percentage of sales. The retention ratio is 50%. For ease of calculation, assume interest expense remains the same. Prepare pro-forma financial statements and determine the amount of borrowing needs, which will be reflected in long-term debt.

		Projected
Cash	400,000
Accts receivable	1,400,000
Inventory	1,800,000
Total current assets	3,600,000
Fixed assets	2,400,000
Total assets	$6,000,000
Accounts Payable	1,200,000
Long-term debt	1,500,000
Total debt	2,700,000
Common stock	1,300,000
Retained Earnings	2,000,000
Total debt & equity	$6,000,000

		Projected
Sales	$9,000,000
Cost of sales	7,500,000
Gross profit	1,500,000
Other expenses	800,000
EBIT	700,000
Interest	100,000
EBT	600,000
Taxes (30%)	180,000
Net income	$420,000