Harvard Prep Shops, a national clothing chain, had sales of $300 million last year. The business has a steady net profit margin of 15 percent and a dividend payout ratio of 30 percent. The balance sheet for the end of last year is shown below:

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?
b. What would the need for external financing be if the net profit margin went up to 20 percent and the dividend payout ratio was increased to 65 percent? Explain.

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Balance Sheet December 31, 2015 ($ millions) Liabilities and Shareholders' Equity Assets $ 7 28 $ 55 Accounts payable... Accrued expenses... Cash Accounts receivable... 15 Other payables. Common stock ... Retained earnings..... Total liabilities and equity. Inventory.... 60 20 Plant and equipment 115 90 Total assets.... $210 $210