Assume that you just created a proforma balance sheet for Quality, Inc. using th

Question

Assume that you just created a proforma balance sheet for Quality, Inc. using the percent of sales
method. In creating the proforma statement, you assumed that Quality’s growth rate in sales would be
25% and that Quality’s projected net profit margin would be 4%. Finally, for the statement you
created you found that outside funds needed (OFN) equals $216,000. Now, all else constant, if you
redo your proforma statement assuming a growth rate in sales of 40%, what will happen to your
estimate of outside funds needed (OFN)?

a. OFN will be greater than $216,000.
b. OFN will be less than $216,000.
c. OFN will not change (i.e., OFN for the new statement will be $216,000).
d. OFN may be greater than, less than or equal to $216,000 depending on the company’s current
debt ratio.
e. Additional information is needed to answer this question.

Explanation / Answer

c. OFN will not change (i.e., OFN for the new statement will be $216,000). OFn is the initial value and will remain same,,interest would affect future values but current in the balance sheet would be same

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