Reference no: EM132355637

Below is your proforma balance sheet for 2019.  For the year 2018, sales were $4 million. Sales are expected to be $5 million in 2019. The company expects its net profit margin for 2019 to equal 5%. In each of the past several years, the company has been paying $50,000 in dividends to its stockholders. The company wants to increase dividends to $80,000 in 2019. The 2018 balance sheet for Pioneer is below.

The XYZ Company Balance Sheet as of December 31, 2018

           Cash                           $ 100,000      Accounts payable                  $ 600,000

           Accounts receivable      400,000      Notes payable                          400,000

           Inventories                  1,200,000      Long-term debt                         200,000

           Fixed assets, net            500,000      Stockholders' equity              1,000,000

           Total assets               $2,200,000      Total liabilities & equity      $2,200,000

Assume that Cash, Accounts Receivable, Inventories, and Accounts Payable vary directly with sales. Net Fixed Assets must increase by $175,000 to support the sales expansion. Any additional financing that Pioneer will need for 2019 will come from new long-term debt, but Pioneer has a covenant that states that their ratio of total debt to total assets may not exceed 45%. How much additional financing will Pioneer need? Can they pay the increased dividend, increase their long-term debt, and still satisfy the covenant? Show numbers to support your answer.