Instructions:

1.1 Calculate internal and sustainable growth rates. Explain what they mean. (10 points)

1.2 Using the percentage of sales approach, prepare proforma financial statements for the year 2022. (20 points)

1.3 Calculate the amount of external financing needed in 2022. What financing options are available for the company? (5 points)

1.4 Assuming that the company operated at 85% capacity in 2021, re-calculate the amount of external financing needed in 2022. (5 points)

1.5 Discuss the role of financial planning. (5 points)

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CASE 1 (45 points) The most recent financial statements for Michel Corporation follow. Sales for year 2022 are projected to increase by 12 percent. Tax rate will be 25% in year 2022. The company maintains a constant dividend pay- out ratio. The firm is operating at full capacity. Income Statement Sales Cost of goods sold Operating expenses Depreciation Operating income Interest Taxable income Taxes Net income Dividends Addition to retained earnings Assets Current assets Cash Accounts receivable Inventory Total CA 2021 40 670 530 30 338 915 5 157 255 1 822 652 3 351 708 636 962 2 714 746 678 687 2 036 059 461 153 740 615 1 085 026 2 286 794 619 307 1 416 753 Balance Sheet 2021 Liabilities and Equity Current liabilities Accounts payable Notes payable Total CL Long-term debt 938 496 2 143 023 3 081 519 5 534 228 CASE 1 (45 points) The most recent financial statements for Michel Corporation follow. Sales for year 2022 are projected to increase by 12 percent. Tax rate will be 25% in year 2022. The company maintains a constant dividend pay- out ratio. The firm is operating at full capacity. Income Statement Sales Cost of goods sold Operating expenses Depreciation Operating income Interest Taxable income Taxes Net income Dividends Addition to retained earnings Assets Current assets Cash Accounts receivable Inventory Total CA 2021 40 670 530 30 338 915 5 157 255 1 822 652 3 351 708 636 962 2 714 746 678 687 2 036 059 461 153 740 615 1 085 026 2 286 794 619 307 1 416 753 Balance Sheet 2021 Liabilities and Equity Current liabilities Accounts payable Notes payable Total CL Long-term debt 938 496 2 143 023 3 081 519 5 534 228