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    Pro forma financial statements

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    Using this information, construct a pro forma income statement and balance sheet for the firm using the percent-of-sales method. What amount of new financing will be needed? If the firm uses ONLY short-term funds for this financing, how will working capital and the D/E ratio be affected? What if the firm uses only long-term debt or equity for this new funding--what happens to working capital and D/E ratio? What mix of new funding would keep the firm's working capital and D/E ratio the same?

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    Solution Summary

    The solution explains the preparation of pro forma financial statements using percentage of sales method.