Lytle Trucking projects a $3 2 million EBIT next year The firms marginal tax rate is 40 , and it currently has $8 million in long term debt with an average coupon rate of 8 Management is projecting a requirement for additional assets costing $1 5 million and no change in current liabilities They pl...

Let D old debt AD additional debt NA new assets RE retained earnings internally generated fun ...

Lytle Trucking projects a $3.2 million EBIT next year. The firms marginal tax rate is 40%, and

Question:

Lytle Trucking projects a $3.2 million EBIT next year. The firm’s marginal tax rate is 40%, and it currently has $8 million in long-term debt with an average rate of 8%. Management is projecting a requirement for additional assets costing $1.5 million and no change in current liabilities. They plan to maintain a 30% payout ratio. Any additional borrowing required to fund next year’s asset growth will carry a 7% rate. Lytle does not plan on issuing additional stock next year. Using the EFR concept rather than the EFR equation, develop an algebraic formula of your own to compute the additional debt needed to support an asset growth of $1.5 million.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...