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5. Van Auken Lumber's 2010 financial statements are shown below. Van Auken Lumber: Balance Sheet as of December 31, 2010 (Thousands of Dollars) Cash $1,800 Accounts payable $ 7,200 Receivables 10,800 Notes payable 3,472 Inventories 12,600 Accruals 2.520 Total current assets $25,200 Total current liabilities $13.192 Net fixed assets 21,600 Mortgage bonds 5,000 Common stock 2,000 Retained earnings 26,60R Total assets $46,800 Total liabilities and equity $46,800 Van Auken Lumber: Income Statement for December 31, 2010 (Thousands of Dollars) Sales S36,000 Operating costs 30,783 Earnings before interest and taxes $ 5.217 Interest 717 Earnings before taxes $4,500 Taxes (40%) 1.800 Net income $ 2,700 Dividends (60%) S 1.620 Addition to retained earnings S 1,080 < a. Assume that the company was operating at full capacity in 2010 with regard to all items except fixed assets, which in 2010 were being utilized to only 75% of capacity. By what percentage could 2011 sales increase over 2010 sales without the need for an increase in fixed assets? b. Now suppose that 2011 sales increase by 25% over 2010 sales. Use the forecasted financial statement method to forecast a 12/31/11 balance sheet and 2011 income statement, assuming that (1) the historical ratios of operating costs/sales, cash sales, receivables/sales, inventories/sales, accounts payable/sales, and accruals/sales remain constant; (2) Van Auken cannot sell any of its fixed assets; (3) any required financing is done at the end of 2011 as notes payable: (4) the fimm cams no interest on its cash; and (5) the interest rate on all of its debt is 12%. Van Auken pays out 60% of its net income as dividends and has a tax rate of 40%. How much additional external capital will be required? (Hints: Base the forecasted interest expense on the amount of debt at the beginning of the year, because any new debt is added at the end of the year; also, use the forecasted income statement to determine the addition to retained earings for use in the balance sheet.) Page 2 15