Question
1. What are retained earnings for the last year?
2. How much debt will be needed for the new project?
3. How much external equity must the company use at the beginning of this year in order to finance the new expansion?
4. If the company decides to retain all earnings for the coming year, how much external equity will be required?
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Given that:Investment needed $5.000.000
Debt to asset ratio 40%
Dividend payout ratio 50%
Net income $2.500.000
Answer 1:
Retained earnings = (1 - Dividend payout ratio) * Net income
Here it is $1.250.000 ...