work in excel gardial green light, a manufacturer of energy-efficent lighting so

Question

work in excel

gardial green light, a manufacturer of energy-efficent lighting solutions, has had such success with it new producs that it is planning to substantially expand its manufacturing capacity with a 15 million investment in new machinery. Gardial plans to maintain its current 30% debt to total assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year its distributes 55% of the year net income. this years net income was 8 million. how much external equity must Gardial seek now to expand is planned?

Explanation / Answer

Calculation of Eatrenal equity requirement to fund New Machinery In $ Million Investment in New Machinery = 15 Sources of funds - 30% debt 4.5 - Retained earnings 3.6 - External Equity required ( balancing figure) 6.9 Total Funds 15 External Equity required ( balancing figure) = $6.9 Million Working Calculation of Retained earnings In $ Million Net Income for the year 8 Less : Dividend paid 4.4 Retained earnings 3.6

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