Year 20X1 20X2

Net sales $1,500,000 $1,656,598

Cost of goods sold 675,000 745,469

Depreciation 270,000 298,188

Interest paid 43,600 44,000

Cash 127,500 140,811

Accounts receivable 450,000 496,980

Inventory 525,000 579,809

Net fixed assets 1,800,000 1,987,918

Accounts payable 375,000 414,150

Notes payable 45,000 50,000

Long-term debt 500,000 500,000

Common stock 1,000,000 1,000,000

Retained earnings 982,500 1,241,368

Tax rate 35% 35%

Dividend payout 30% 30%

Delta has 600,000 common shares outstanding. The firm is projecting a 20% increase in net sales for the coming year (20X3). Delta uses the percentage of sales approach to plan for its financing needs. In using this approach, the firm assumes that cost of goods sold, all assets (current and fixed), and accounts payable will all remain a constant percentage of sales. Depreciation expense is assumed to be 15% of net fixed assets, while notes payable and long-term debt will remain at the same level as 20X2. The interest rate charged on notes payable and long-term debt is also expected to remain the same. The firm will aim to maintain its dividend payout of 30% for the foreseeable future.

a.Construct the pro-forma Statement of Comprehensive Income and Statement of Financial Position for Delta Corporation for 20X3. Calculate the external financing needed (EFN) for 20X3. Round all your numbers in the pro-forma statements to the nearest dollar.(4 marks)

b.Based on its 20X2 information, what is Delta's capital intensity ratio? Round your answer to four decimal places. (1 mark)

c.What is Delta's full capacity sales if it is currently operating at 80% capacity (20X2)? Round your answer to the nearest integer. (1 mark)

d.Recalculate the firm's external financing needed (EFN) for 20X3 if Delta is only operating at 80% capacity. Assume that if the 20X3 net sales is lower than full capacity sales, then the net fixed assets in 20X3 will be the same as the net fixed assets in 20X2 (i.e., assume that the firm will purchase just enough fixed assets to cover depreciation expense for 20X3). Interpret this EFN number. (5 marks)

e.What is Delta's internal growth rate for 20X2? Round your final answer in percentage to two decimal places.(2 marks)

f.What is Delta's sustainable growth rate for 20X2? Round your final answer in percentage to two decimal places. (2 marks)

g.Assume that Delta is operating at 100% capacity. Calculate the EFN for the firm if it wants to grow its sales by 100% for 20X3. Interpret this EFN number.