External Equity Financing Gardial GreenLights, a manufacturer of energy efficien
ID: 2726900 • Letter: E
Question
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 45% 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 25% 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?
___ $ million
Explanation / Answer
Total assets = 15000000
Debt to total= 45%
Equity to total asset = 55%
Equity = 8250000
Net income = 8000000
Less- dividend = 2000000
Retained earnings = 6000000
External equity must gardial seek to expand as planned = 8250000-6000000
= 2250000
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