Financing Deficit

Stevens TextileCorporation's 2016 financial statements are shown below:

Balance Sheetas of December 31, 2016 (Thousands of Dollars)

Cash	$ 1,080		Accounts payable	$ 4,320
Receivables	6,480		Accruals	2,880
Inventories	9,000		Line of credit	0
Total currentassets	$16,560		Notes payable	2,100
Net fixed assets	12,600		Total currentliabilities	$ 9,300
			Mortgage bonds	3,500
			Common stock	3,500
			Retained earnings	12,860
Total assets	$29,160		Total liabilitiesand equity	$29,160

IncomeStatement for January 1 - December 31, 2016 (Thousands ofDollars)

Sales	$36,000
Operating costs	32,440
Earnings beforeinterest and taxes	$ 3,560
Interest	460
Pre-taxearnings	$ 3,100
Taxes (40%)	1,240
Net income	$ 1,860
Dividends (45%)	$  837
Addition to retained earnings	$ 1,023

1. Suppose 2017 sales areprojected to increase by 20% over 2016 sales. Use the forecastedfinancial statement method to forecast a balance sheet and incomestatement for December 31, 2017. The interest rate on all debt is9%, and cash earns no interest income. Assume that all additionaldebt in the form of a line of credit is added at the end of theyear, which means that you should base the forecasted interestexpense on the balance of debt at the beginning of the year. Usethe forecasted income statement to determine the addition toretained earnings. Assume that the company was operating at fullcapacity in 2016, that it cannot sell off any of its fixed assets,and that any required financing will be borrowed as a line ofcredit. Also, assume that assets, spontaneous liabilities, andoperating costs are expected to increase by the same percentage assales. Determine the additional funds needed. Round your answers tothe nearest dollar. Do not round intermediate calculations.

   Total assets	$
   AFN	$

2. What is the resultingtotal forecasted amount of the line of credit? Round your answer tothe nearest dollar. Do not round intermediate calculations.
   Line of credit     $
3. 
   
4. In your answers to Parts aand b, you should not have charged any interest on the additionaldebt added during 2017 because it was assumed that the new debt wasadded at the end of the year. But now suppose that the new debt isadded throughout the year. Don't do any calculations, but how wouldthis change the answers to parts a and b?
   If debt is added throughout the year rather than only at the end ofthe year, interest expense will be -Select-higherlower than in theprojections of part a. This would cause net income to be-Select-higherlower , the addition to retained earnings to be-Select-higherlower , and the AFN to be -Select-higherlower . Thus,you would have to -Select-add insubtract from new debt.