Firm X Has the Following Balance Sheet:
​ $\text { Balance Sheet as of } 12 / 31 / \mathrm{XX}$

Firm X has the following balance sheet:
​ $\text { Balance Sheet as of } 12 / 31 / \mathrm{XX}$
$\begin{array}{lrlr}\text { Assets }&&\text { Liabilities and Equity }\\\hline\text { Cash } & \$ 3,500 &\text { Accounts payable } & \$ 14,500 \\\text { Marketable securities } & 3,000&\text { Bank loans } & 35,000 \\\text { Accounts receivable } & 27,000&\text { Bonds } & 21,500 \\\text { Inventory } & 31,000&\text { Common stock } & 10,000 \\\text { Plant \& equipment } & 77,000&\text { Retained earnings } & 60,500\\&\$141,500&&\$141,500\end{array}$
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Sales are currently $100,000 and management expects them to rise by 20 percent to $120,000. The profit margin on sales is 10 percent and the firm distributes 30 percent of its earnings as cash dividends.​
a. How much external finance will be required by the expansion according to the percent of sales technique?
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b. If the firm needs external finance, the funds should be acquired by issuing long-term debt. If the firm has excess funds, they should be held in marketable securities. If the firm needs funds, management may also draw upon the firm's holdings of marketable securities. Construct a new projected balance sheet for the anticipated level of sales assuming that management does not increase the firm's holdings of cash.​