At year-end 2004, total assets for Bertin Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2004 were $2.5 million, are expected to increase by 25 percent in 2005. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Bertin typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 in 2004, and retained earnings were $295,000. Bertin plans to sell new common stock in the amount of $75,000. The firm’s profit margin on sales is 6 percent; 40 percent of earnings will be paid out as dividends.
a. What was Bertin’s total debt in 2004?
b. How much new, long-term debt financing will be needed in 2005? (Hint: AFN _ New stock _ New long-term debt.) Do not consider any financing feedback effects.