Spotted Owl Winery reported 2020 sales of $250,000 and earnings after tax of $25,000. Its December 31, 2020 condensed balance sheet follows. Current assets $ 90,000 Current liabilities $ 45,000 Plant and equipment 300,000 Long-term liabilities 155,000 Common shares 115,000 Retained earnings 75,000 Total assets $390,000 Total liabilities and equity $390,000 The company always maintains a dividend payout ratio of 40%. Based on predicted economic conditions it expects 2021 sales volume to increase by 25% and its profit margin to remain the same as in 2020. Calculate the two independent scenarios below:

a) Use the Percentage of Sales method to determine the external financing required, assuming they have excess plant capacity and will not require any new investment in plant and equipment. (4 marks) Increase in Retained Earnings = $____________ Required New Funding = $____________

b) Use the Percentage of Sales method to determine the external financing required, assuming they do not have excess plant capacity. They would require a $30,000 increase in net plant and equipment to accommodate the sales increase. (2 marks) Required New Funding = $____________