To increase production capacity by 25%, a $500,000 investment is required. The firm wants to maintain a
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Question:
To increase production capacity by 25%, a $500,000 investment is required. The firm wants to maintain a 20% debt-to-asset ratio, and continue to pay 40% of income as dividends. Net Income was $200,000.
A. How much External Financing is needed?
B. How much new Debt must they Issue?
New debt required = (New investment)(Debt ratio)
C. How much new equity should they issue?
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