1. Reed Corporation has a capital budget of $1.2 million. The company wants to maintain a target capital structure which is 60% debt and 40% equity. The company forecasts that its net income this year will be $600,000.

a. If the firm uses a payout ratio of 20%, how much will be added to retained earnings?

b. If the company wishes to maintain its debt-equity ratio to finance the capital budget, how much debt must the firm issue?

c. How much equity must the firm issue?