Midland Chemical Industries (December 31 Statements) (in thousands of dollars) 2008 2009 Assets Cash amp; cash equivalents Accounts Receivable

The last two years of financial information in the form of Income Statements and Balance Sheets for the Midland Chemical Company is attached. The company is anticipating growth and attempting to plan on the level of financing needed the best way for expanding their production capacity. The current price of their common stock is $17.25 per share and the equity beta for the company is 1.75. If additional financing is needed, they will be financing using the same debt to equity capital structure as their current market debt to equity ratio. If they need to issue debt, they expect to issue 7 year bonds, $1000 Face Value, 8% coupon rate and expected to receive 1034 after all transaction costs. The expected return on the market is expected to be 11% and the mark risk premium is 7% above the current risk-free rate of interest of 4%. Midland Chemical’s normal growth rate is 8%. If the company needs to expand the capacity of their fixed plant and equipments, they have two production options to consider. Option 1 has an initial cost of $49,000,000 and will support the projected change in sales at a Cost of Goods Sold near their current rate. Option 2 has the same capacity, but is more expensive at $52,500,000 but it will lower the Costs of Goods Sold to 63% of sales for the marginal production. Using this info, please determine the following:1) Assuming the company has excess capacity, project Income Statement and Balance Sheets for 2010 with the 15% increase in sales; determine the level of external financing needed to support those sales.