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EXTERNAL EQUITY FINANCING Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40% with a $10 million investment in plant and machinery. The firm wants to maintain a 40% debt level in its capital structure. It also wants to maintain its past dividend policy of distributing 45% of last year’s net income. In 2015, net income was $5 million. How much external equity must Northern Pacific seek at the beginning of 2016 to expand capacity as desired? Assume that the firm uses only debt and common equity in its capital structure.

BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 15, Problem 5P
Textbook Problem

EXTERNAL EQUITY FINANCING Northern Pacific Heating and Cooling Inc. has a 6-month  backlog of orders for its patented solar heating system. To meet this demand, management  plans to expand production capacity by 40% with a $10 million investment in plant and  machinery. The firm wants to maintain a 40% debt level in its capital structure. It also  wants to maintain its past dividend policy of distributing 45% of last year’s net income. In  2015, net income was $5 million. How much external equity must Northern Pacific seek at  the beginning of 2016 to expand capacity as desired? Assume that the firm uses only debt  and common equity in its capital structure.

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