Upton Computers makes bulk purchases of small computers, stock them in conveniently located warehouses, and ship them

to its chain of retail stores. Upton’s balance sheet as of December 31, 2004, is shown here (millions): Cash Receivable Inventories Total Current Assets Net Fixed Assets $3.5 26.0 58.0 87.5 35.0 Accounts payable Notes Payable Accruals Total Current liabilities Mortgage Loan Common Stock Retained Earnings Total liabilities and equity $9.0 $18.0 8.5 35.5 6.0 15.0 66.0 122.5

Total Assets

$122.5

Sales for 2004 were $350 million, while net income for the year was $10.5 million. Upton paid dividends of $4.2 million to common stockholders. The firm is operating at full capacity. Assume that all the ratios remain constant. A. If sales are projected to increase by 70 million, or 20 percent, during 2005, use the Additional Funds Needed equation to determine Upton’s projected external capital requirements. B. Construct Upton’s pro forma balance sheet for December 31, 2005. Assume that all external capital requirements are met by bank loans and are reflected in notes payable. Assume Upton’s profit margin and dividend payout ratio remain constant.

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