It is January 2nd and senior management of Baldwin meets to determine their inve

Question

It is January 2nd and senior management of Baldwin meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($37.61) and leverage changes to 2.7. Which of the following statements are true? Select all that apply. Select: 3

1.Working capital will remain the same at $16,296,930

2.Total liabilities will be $121,082,334

3.The total investment for Baldwin will be $208,600,464

4.Equity will be $84,697,379

5.Baldwin will issue stock totaling $2,820,750

6.Total Assets will rise to $221,066,899

Explanation / Answer

5. New Equity = 75,000 x 37.61 = 2,820,750.
Hence True

4. If Old Equity = 84,697,379

Total Equity = Old Equity + 2,820,750 = 87,518,129

Leverage = Total Assets(stated above) / Total Stockholders' Equity = 221,066,899/87,518,129 = 2.5
Hence, 6 and 4 are false.Subsequently 2 comes up to false.

Therefore 2,3 and 5 are true.

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