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Sinclair Ltd is expecting a 20 percent increase in Sales next year. Management is concerned...

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Finance

Sinclair Ltd is expecting a 20 percent increase in Sales next year. Management is concerned about the companys need for external funds. All assets and current liabilities will vary directly with sales. Assume the firm is already using capital assets at full capacity. Sinclair Ltd has the following statements of the company. Income Statement Sales $200,000 Expenses 158,000 Earnings before interest and taxes 42,000 Interest 2,000 Earnings before taxes 40,000 Taxes 20,000 Earnings after taxes $ 20,000 Dividends $10,000 Balance Sheet Assets Liabilities and Shareholders Equity Cash $ 5,000 Accounts payable $ 5,000 Accounts receivable 10,000 Accrued wages 1,000 Inventory 15,000 Accrued taxes 2,000 Current assets 30,000 Current liabilities 8,000 Capital assets 70,000 Notes payable 7,000 Long-term debt 15,000 Common stock 20,000 Retained earnings 50,000 Total assets $100,000 Total liabilities and equity $100,000 Required: a) Using percent-of-sales-method, determine whether XYZ has external financing needs. b) Prepare a pro forma balance sheet with any financing adjustments made to notes payable and then long term debt. c) Calculate the current Ratio and total debt to assets ratio for each year.

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