With sales of $450,000, MJM, Inc. is operating at capacity but management anticipates that sales will grow 20 percent during the coming year. The company earns 8 percent on sales and distributes 50 percent of earnings to stockholders. Its current balance sheet is as follows:

**MJM, Incorporated Balance Sheet as of 12/31/X0**

**Assets** **Liabilities and Equity**
Cash$8,500 Accounts payable$50,000
Accounts receivable 33,000 Accruals 41,000
Inventory 73,000 Notes payable 0
Current assets 114,500 Current liabilities 91,000
Plant and equipment 110,000 Common stock 60,000
Retained earnings 73,500
Total assets$224,500 Total liabilities and equity$224,500

In addition to cash, which assets and liabilities will increase with the increase in sales and by how much if the percent of sales is used to forecast the increases? If assets or liabilities do not change, enter zero as a forecasted change.

**Assets and Liabilities** **Change** **Forecasted change**
Cash ------------ Increase
Accounts receivable ______ Increase
Inventory -______- Increase
Plant and equipment ______ Increase
Accounts payable _______ Increase
Accruals _______ Increase
Notes payable _______ Increase

**How much external finance will the firm need?** Round your answer to the nearest dollar.

$

**If cash did not increase but could be maintained at $8,500, what impact would the lower cash have on the firm's need for external finance?

If cash remained at $8,500 the need for external funds would be ___________ increased decreasedItem 16 by $ .

**If the firm distributed 25 percent (2) instead of 50 percent (1) of its earnings, would it need external finance?** The net increase in retained earnings comparing (2) with (1) is $ . It _______ would would notItem 19 cover the external funds needed.

**Construct a new balance sheet assuming that cash increases with the increase in sales and the firm distributes 50 percent of its earnings to stockholders. If the firm needs external finance, acquire the funds by issuing a short-term note to a commercial bank.*

**MJM, Incorporated Balance Sheet as of 12/31/X1**

**Assets** & **Liabilities and Equity**
Cash$ Accounts payable$
Accounts receivable Accruals
Inventory
Notes payable
Current assets
Current liabilities
Plant and equipment
Common stock
Retained earnings
Total assets$
Total liabilities and equity$