Reference no: EM133110021

Upton Computers makes high-volume purchases of small computers, stores them in well-located warehouses, and ships them to its chain of distributors. Your balance sheet for December 31, 2005 (in millions of dollars) is here:

Assets
Cash	$3.5
Receivables	$26.0
Inventory	$58.0
Total current assets	$87.5
Total Fixed assets	$35.0
Total assets	$122.5
Liabilities & Owners Equity
Accounts payable		$9.0
Documents to pay		$18.0
Accumulations		$8.5
Total current liabilities		$35.5
Mortgage loan		$6.0
Common actions		$15.0
Retained earnings		$66.0
Total assets		$122.5

In 2005, sales were $ 350 million, while net profit was $ 10.5 million. The company paid dividends of $ 4.2 million to common shareholders. It is operating at full capacity. Assume that all ratios remain constant.

• According to the estimates, sales will increase by $ 70 million (20%) during 2006, with the AFN equation determining the projected external needs for external capital.
• Construct the Pro-forma balance sheet for December 31, 2006. Assume that external capital needs are met by bank loans and reflected in notes payable. Assume that the profit margin and dividend yield ratio remain constant.

Reference book: 

Corporate Finance: A Focused Approach

by Ehrhardt and Brigham

Second Edition