Reference no: EM132466892

Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 25 percent and a dividend payout ratio of 40 percent. The balance sheet for the end of last year is shown below:

Balance Sheet

December 31, 20XX ($ millions)

Assets Liabilities and Shareholders' Equity  

Cash $4    Accounts payable $17   

Account receivable $22    Accrued expenses $11   

Inventory $68    Other payables $23     

Common stock $35   

Plant and equipment $155   Retained earnings $163     

Total assets $249    Total liabilities and equity $249  

Harvard's anticipates a large increase in the demand for tweed sport coats and deck shoes. A sales increase of 25 percent is forecast.

All balance sheet items are expected to maintain the same percent-of-sales relationships as last year, except for common stock and retained earnings. No change in the number of common shares outstanding is scheduled, and retained earnings will change as dictated by the profits and dividend policy of the firm.

a. Will external financing be required for the Prep Shop during the coming year?

Yes or no?

b. What would the need for external financing be if the net profit margin went up to 30 percent and the dividend payout ratio was increased to 75 percent? (Enter the answer in millions. Round the final answer to 2 decimal places.) Required new funds?