pro forma and ratios Problems 12- Magee Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, and ships them to its chain of retail stores. Magee's balance sheet as of December 31, 2005, is shown here (S inillions): Cash $ 3.5 Accounts payable $ 9.0 Receivables 26.0 Notes payable 18.0 Inventories 58.0 Accruals 8.5 Current assets S 87.5 Current liabilities $ 35.5 Net fixed assets 35.0 Long-term bonds 6.0 Common stock 15.0 Retained earnings Total assets $122.5 Total liabilities and equity $122.5 66.0 Sales for 2005 were $350 million, while net income for the year was $10.5 mil- lion. Magee paid dividends of $4.2 million to common stockholders. Sales are projected to increase by $70 million, or 20 percent, during 2006. The firm is operating at full capacity. Assume that the profit margin and dividend payout ratios remain constant. a. Construct Magee's pro forma balance sheet for December 31, 2006. Assume that all external capital requirements are met by bank loans and are reflected in notes payable. Do not consider any financing feedback effects. b. Now calculate the following ratios, based on your projected December 31, 2006, balance sheet. Magee's 2005 ratios and industry average ratios are shown here for comparison: Industry Average 12/31/05 31/06 Current Ratio Debt total assets Return on equity Tagee Computers 12/31/05 2.5 33.9% 13.0% 3.0 30.0% 12.0% c. (1) Now assume that Magee grows by the same $70 million but that the growth is spread over five yearsthat is, that sales grow by $14 mil- lion each year. Do not consider any financing feedback effects. (2) Construct a pro forma balance sheet as of December 31, 2006, using notes payable as the balancing item. (3) Calculate the current ratio, debt/assets ratio, and rate of return on equity as of December 31, 2010. (Hint: Be sure to use total sales, which amount to $1,960 million, to calculate retained earnings but 2010 prof- its to calculate the rate of return on equitythat is, return on equity = (2010 profits)/(12/31/10 equity).] d. Do the plans outlined in parts a orc seem feasible to you? That is, do you think Magee could borrow the required capital, and would the company be raising the chance of its bankruptcy to an excessive level in the event of some temporary misfortune