Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
EXTERNAL EQUITY FINANCING Coastal Carolina 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 45% with a $20 million investment in plant and machinery. The firm wants to maintain a 35% debt level in its capital structure. It also wants to 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 and common equity in its capital structure.
To Determine: The amount of external equity must Company CC at the beginning of 2019.
Introduction: Equity financing alludes to raising assets for business purpose by exchanging complete or restricted ownership for organization's equity for cash or different assets. In financing companies, this is most ordinarily done by selling either common stock, preferred stock, or a mix of common stock and preferred stock.
Determine the retained earnings
Therefore the retained earnings are $2,250,000.
Determine the amount of external equity
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