Suppose instead, Evergreen uses a retention ratio of 30%. Their capital budget for the upcoming year = $1,600,000. Calculate the debt, external equity financing required and the dividends per share.
Suppose instead, Evergreen uses a retention ratio of 30%. Their capital budget for the upcoming year = $1,600,000. Calculate the debt, external equity financing required and the dividends per share.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose instead, Evergreen uses a retention ratio of 30%. Their capital budget
for the upcoming year = $1,600,000. Calculate the debt, external equity
financing required and the dividends per share.
Transcribed Image Text:Evergreen Inc's most recent Statement of Financial Position is given below.
Evergreen Inc.
Statement of Financial Position
As at Dec 31, 2021
Assets
Liabilities
Cash
425,000
Accounts Payable
$
300,000
Accounts Receivable $
400,000
Other Current Liabilities
425,000
Inventories
500,000
Total Current Liabilities
$
725,000
Total Current Assets $
1,325,000
Net Fixed Assets
18,000,000
LT Debt
$
2,500,000
Common Stock (85,000 shares o/s)
4,500,000
Retained Earnings
11,600,000
Total Liabilities &
Total Assets
$ 19,325,000
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%
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