Ascott Prints is in negotiation with two of its largest customers to increase the firm’s sales dramatically. The increase will require that Ascott expand its production facilities at a cost of €3 million. Parker expects to pay out €800,000 in dividends to its shareholders next year.

Ascott maintains a 40 percent debt ratio in its capital structure.

a. If Ascott earns €1.2 million next year, how much common stock will the firm need to sell in order to maintain its target capital structure?

b. If Ascott wants to avoid selling any new stock, how much can the firm spend on new capital?