At year-end 2007, total assets for Bertin Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2007 were $2.5 million, are expected to increase by 25% in 2008. 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 2007, 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%; 40% of earnings will be paid out as dividends.
a. What was Bertin’s total debt in 2007?
b. How much new, long-term debt financing will be needed in 2008?