1. Garlington Technologies Inc.’s 2019 financial statements are shown below:

Income Statement for December 31, 2019

Sales$4,000,000Operating costs3,200,000 EBIT$  800,000Interest120,000 Pre-tax earnings$  680,000Taxes (25%)170,000Net income510,000Dividends$  190,000

Balance Sheet as of December 31, 2019

Cash$   160,000 Accounts payable$   360,000Receivables360,000 Line of credit0Inventories720,000 Accruals200,000 Total CA$1,240,000  Total CL$   560,000Fixed assets4,000,000 Long-term bonds1,000,000 Total Assets$5,240,000 Common stock1,100,000   RE2,580,000    Total L&E$5,240,000

Suppose that in 2020 sales increase to $4.2 million and that 2020 dividends will increase to $192,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 11%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar. 

Garlington Technologies Inc.
Pro Forma Income Statement
December 31, 2020Sales $  Operating costs $  EBIT $  Interest $  Pre-tax earnings $  Taxes (25%) $  Net income $  Dividends: $  Addition to RE: $  Garlington Technologies Inc.
Pro Forma Balance Statement
December 31, 2020Cash $  Receivables $  Inventories $   Total current assets $  Fixed assets $   Total assets $  Accounts payable $  Line of credit $  Accruals $   Total current liabilities $  LT bonds $  Common stock $  Retained earnings $   Total L&E $  

2. Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton’s balance sheet as of December 31, 2019, is shown here (millions of dollars):

Cash$   3.5 Accounts payable$   9.0Receivables26.0 Notes payable18.0Inventories58.0 Line of credit0 Total current assets$ 87.5 Accruals8.5Net fixed assets35.0  Total current liabilities$ 35.5   Mortgage loan6.0   Common stock15.0   Retained earnings66.0 Total assets$122.5  Total liabilities and equity$122.5

Sales for 2019 were $250 million and net income for the year was $7.5 million, so the firm’s profit margin was 3.0%. Upton paid dividends of $3 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020. Do not round intermediate calculations.

If sales are projected to increase by $37.5 million, or 15%, during 2020, use the AFN equation to determine Upton’s projected external capital requirements. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.$    million

Using the AFN equation, determine Upton’s self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.  %

Use the forecasted financial statement method to forecast Upton’s balance sheet for December 31, 2020. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton’s profit margin and dividend payout ratio will be the same in 2020 as they were in 2019. What is the amount of the line of credit reported on the 2020 forecasted balance sheets? (Hint: You don’t need to forecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2020 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places.Upton Computers
Pro Forma Balance Sheet
December 31, 2020
(Millions of Dollars)
Cash$  Receivables$  Inventories$   Total current assets$  Net fixed assets$   Total assets$  Accounts payable$  Notes payable$  Line of credit$  Accruals$    Total current liabilities$  Mortgage loan$  Common stock$  Retained earnings$    Total liabilities and equity$