At the year-end 2010, Bertin Inc’s total assets were $1.2 million and its account payable was $375,000. Sales, which in 2010 were $2.5 million, are expected to increase by 25% in 2011. Total assets and accounts payable are proportional to sales and that relationship will be maintained. Bertin typically uses no current liabilities other than the accounts payable. Common stock amounted to $425,000 in 2010, and retained earnings were $295,000. Bertin has arranged to sell $75,000 of new common stocks in 2011 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long term debt at the end of 2011. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its profit margin on sales is 6% and 40% of earnings will be paid out as dividends.
a. What were Bertin’s total long term debt and total liabilities in 2010?
b. How much new longer debt financing will be needed in 2011? (Hint: AFN-New stock=New long term debt.)