Problem 2 Tess' Shop, Inc., a national clothing chain, had sales of P300 millions last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The...

Extracted text: Problem 2 Tess' Shop, Inc., a national clothing chain, had sales of P300 millions last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The statement of last year is shown below. Statement of Financial Position End of Year (P millions) Assets Liabilities &Equity Cash.. ....P20 Accountspayable. P70 Accountsreceivable.. .25 Accruedexpenses... .20 Inventory.. Otherpayables... . 30 75 Plant andequipment.. 120 Ordinary shares... .40 Retainedearnings... 80 Totalassets... P240 Total liabilitiesandequity... P240 The firm's marketing staff has told the president that in the coming year there will be a large increase in demand for overcoats and wool stacks. A sales increase of 15 percent is forecasted for the company. All statement of financial position items are expected to maintain the same percent-of-sales relationships as last year, except for ordinary shares and retained earnings. No change is scheduled in the number of ordinary shares outstanding, and retained earmings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 8 percent.) a. Will external financing be required for the company during the comingyear? b. Whatwouldbethe need forexternalfinancing ifthenetprofit margin wentup to9.5 percent and the dividend payout ratio was increased to 50 percent?Explain.