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The Longbranch Western Wear Company has the following financial statements, which are representative of the companys historical average.

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..............................	$ 10,000		Accounts payable...............		$ 5,000
Accounts receivable.....	10,000		Accrued wages...................		1,000
Inventory......................	15,000		Accrued taxes.....................		2,000
Current assets.............	35,000		Current liabilities................		8,000
Capital assets................	70,000		Notes payable......................		7,000
			Long-term debt....................		15,000
			Common stock (at Par) 20,000		20,00
			Paid In Capital 5,000 Retained earnings 50,000		50,000
Total assets...................	$105,000		Total Common Equity 75,000 Total liabilities and equity....		$105,000

Longbranch is expecting a 20 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in sales is expected to be carried out without any expansion of capital assets; instead, it will be done through more efficient asset utilization in the existing stores. The Dividends Payout Ratio remains unchanged and forecasted taxes are $24,400.

a). Using a percentofsales method, determine whether Longbranch Western Wear has external financing needs.

b). Prepare a pro forma income statement and balance sheet with any financing adjustment made to notes payable, i.e including the external financing needs (the plug). If external financing is not required, excess funds are first used to reduce notes payable with the difference going towards reducing long-term debt.

c). Calculate the current ratio and total debt to assets ratio for each year.

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