Bundle: Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition 6-Month Printed Access Card), 8th + Aplia Printed Access Card
8th Edition
ISBN: 9781305132559
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 14, Problem 5P
Summary Introduction
To calculate: Amount of external equity NP seeks at the beginning to expand its capacity as desire.
External Equity Financing:
When a firm requires funds and it obtains them externally, then it is termed as external equity financing. It is also termed as selling of ownership interest to acquire funds for business.
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Coastal Carolina Heating and Cooling Inc. has a 6-monthbacklog of orders for its patented solar heating system. To meet this demand, managementplans to expand production capacity by 45% with a $20 million investment in plant andmachinery. The firm wants to maintain a 35% debt level in its capital structure. It also wantsto maintain its past dividend policy of distributing 55% of last year’s net income. In 2018,net income was $5 million. How much external equity must Coastal Carolina seek at the beginning of 2019 to expand capacity as desired? Assume that the firm uses only debt andcommon equity in its capital structure.
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External Equity Financing
Gardial GreenLights, a manufacturer of
energy-efficient lighting solutions, has
had such success with its new products
that it is planning to substantially
expand its manufacturing capacity with
a $15 million investment in new
machinery. Gardial plans to maintain its
current 25% debt-to-total-assets ratio
for its capital structure and to maintain
its dividend policy in which at the end of
each year it distributes 35% of the
year's net income. This year's net
income was $8 million. How much
external equity must Gardial seek now
to expand as planned? Enter your
answer in millions. For example, an
answer of $1.23 million should be
entered as 1.23, not 1,230,000. Round
your answer to two decimal places.
million
LA
Chapter 14 Solutions
Bundle: Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition 6-Month Printed Access Card), 8th + Aplia Printed Access Card
Ch. 14 - Prob. 1QCh. 14 - The cost of retained earnings is less than the...Ch. 14 - Would it ever be rational for a firm to borrow...Ch. 14 - Modigliani and Miller (MM), on the one hand, and...Ch. 14 - How would each of the following changes tend to...Ch. 14 - One position expressed in the financial literature...Ch. 14 - Prob. 7QCh. 14 - What is the difference between a stock dividend...Ch. 14 - Most firms like to have their stock selling at a...Ch. 14 - Indicate whether the following statements are true...
Ch. 14 - Prob. 11QCh. 14 - RESIDUAL DIVIDEND MODEL Axel Telecommunications...Ch. 14 - Prob. 2PCh. 14 - STOCK REPURCHASES Beta Industries has net income...Ch. 14 - STOCK SPLIT After a 5-for-I stock split, Strasburg...Ch. 14 - Prob. 5PCh. 14 - RESIDUAL DIVIDEND MODEL Welch Company is...Ch. 14 - DIVIDENDS Bowles Sporting Inc. is prepared to...Ch. 14 - Prob. 8PCh. 14 - ALTERNATIVE DIVIDEND POLICIES In 2013, Keenan...Ch. 14 - RESIDUAL DIVIDEND MODEL Buena Terra Corporation is...Ch. 14 - DIVIDEND POLICY Southeastern Steel Company (SSC)...Ch. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
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