To increase production capacity by 20%, a $3 million investment is needed. The firm wants to maintain a 40% debt-to-asset ratio, and continue to pay 75% of income as dividends. Net Income was $4 million. given Step 1 Analysis The new debt here needed will be New debt =Total investment needed* debt to assets ratio Step 2 Calculation of new debt needed Total investment needed =$3 million debt-to-asset ratio =40% New Debt =$3 million*40% =$1.2 million hence amount of new debt must be issue is $1.2 million . How much new external equity should they issue?

To increase production capacity by 20%, a $3 million investment is needed. The firm wants to maintain a 40% debt-to-asset ratio, and continue to pay 75% of income as dividends. Net Income was $4 million. given Step 1 Analysis The new debt here needed will be New debt =Total investment needed* debt to assets ratio Step 2 Calculation of new debt needed Total investment needed =$3 million debt-to-asset ratio =40% New Debt =$3 million*40% =$1.2 million hence amount of new debt must be issue is $1.2 million . How much new external equity should they issue?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 5P: Long-Term Financing Needed At year-end 2018, Wallace Landscapings total assets were 2.17 million,...

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Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?
Long-Term Financing Needed At year-end 2018, Wallace Landscapings total assets were 2.17 million, and its accounts payable were 560,000. Sales, which in 2018 were 3.5 million, are expected to increase by 35% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to 625,000 in 2018, and retained earnings were 395,000. Wallace has arranged to sell 195,000 of new common stock in 2019 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2019. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 45% of earnings will be paid out as dividends. a. What were Wallaces total long-term debt and total liabilities in 2018? b. How much new long-term debt financing will be needed in 2019? [Hint: AFN New stock = New long-term debt.)
Need for External Financing To increase production capacity by 20%, a $5 million investment is needed. The firm wants to maintain a 40% debt-to-asset ratio, and continue to pay 25% of income as dividends. Net Income was $3 million. A. How much External Financing is needed? B. How much new Debt must they Issue? C. How much new external equity should they issue?
Need for External Financing To increase production capacity by 20%, a $3 million investment is needed. The firm wants to maintain a 40% debt-to-asset ratio, and continue to pay 75% of income as dividends. Net Income was $4 million. B. How much new Debt must they Issue?