Part A:(8 Marks)

Dazin corporation is an unlevered firm. Recently, the company decided to expand its business. For this purpose, it would require a capital of $30 million. The company may raise the capital through equity financing, and for this reason, it must sell 2/3^rd of the equity stakes. However, this decision would dilute the firm's ownership control. The firm does not want to lose control and, therefore, intends to keep fifty percent ownership.

Required

a.Assume that the firm finances $20 million through borrowing; what percentage of equity would Dazin corporation need to sell to finance $10 million? (Assume that the firm operates in a perfect capital market) (4 Marks)

b.Calculate the smallest amount Dazin corporation can borrow to finance $30 million without losing ownership control (Assume that the firm operates in a perfect capital market). (4 Marks)