Question
Q8 jataly is considering an expansion. Consider the following information about the financial structure of the firm. Account payables $ 100,000 Short-term debt 200,000 Current
Q8 jataly is considering an expansion. Consider the following information about the financial structure of the firm.
Account payables | $ 100,000 |
Short-term debt | 200,000 |
Current liabilities | $ 300,000 |
Long-term debt | $ 1,000,000 |
Owners equity | 1,500,000 |
Total | $ 28,00,000 |
Assume that the company paid a dividend of $2.00 per share last year and the dividend is expected to grow at 4 per cent for the next 4 years, and after that the growth rate will be 3 per cent forever. Required: A - If the firm aims to maintain a debt ratio of 40 per cent and need to raise an additional $1 million, how much equity does it need to finance the expansion? B - Calculate the value of the share if the required rate of return is 6 per cent?
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