Question
Evergreen Incs most recent Statement of Financial Position is given below. Evergreen Inc. Statement of Financial Position As at Dec 31, 2021 Assets Cash 425,000$
Evergreen Incs most recent Statement of Financial Position is given below.
Evergreen Inc. Statement of Financial Position As at Dec 31, 2021
Assets
Cash 425,000$
Accounts Payable 300,000$
Accounts Receivable 400,000$
Inventories 500,000$
Total Current Assets1,325,000$
Net Fixed Assets18,000,000$
Total Assets19,325,000$
Liabilities
Accounts Payable 300,000$
Other Current Liabilities 425,000$
Total Current Liabilities 725,000$
LT Debt 2,500,000$
Common Stock (85,000 shares o/s) 4,500,000$
Retained Earnings 11,600,000$
Total Liabilities & Owners Equity 19,325,000$
Additional Information:
- Current market price per common share = $ 195
- Before tax cost of borrowing (secured loan) = 5%
- Weighted Average Cost of Capital =12%
- Net Income for 2021 = $925,000
- Target D/E ratio based on market values = 0.25
- Corporate tax rate = 35%
i) Suppose Evergreen uses a residual dividend policy. Their capital budget for the upcoming year = $1,600,000. Calculate the debt, external equity financing required and the dividends per share.
ii) Suppose instead, Evergreen uses a residual dividend policy. Their capital budget for the upcoming year = $1,100,000. Calculate the debt, external equity financing required and the dividends per share.
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