Charles-Baker, International, Inc. expects sales to increase to $36 million next year from $27 million this year. Its current assets are $9.0 million, accounts payable is $2.7 million, fixed assets are $9.0 million, long-term debt is $3.6 million, owners' equity is $11.0 million, and the earnings after tax-to-sales ratio is 5 percent. Current assets and accounts payable can be assumed to increase in the same proportion as sales. Other current liabilities are expected to stay at the same level. Net fixed assets will increase by $1.0 million and the firm plans to pay $800,000 as dividends.
1. What are Charles-Baker, International, Inc.'s total financing needs for next year?
2. How much money would the firm have to borrow to finance its needs?