Sallustro, Cira Efor the next fiscal year, you forecast net income of $51,300 an
ID: 2765349 • Letter: S
Question
Sallustro, Cira Efor the next fiscal year, you forecast net income of $51,300 and ending assets of $503,800. your firm's payout ratio is 9.9%. your beginning stockholders' equity is $296,800 and your beginning total liability are $120,200. your non-debt liabilities such as accounts payable are forecasted to increase by $9,500. assume your beginning debt is $106,900. what amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your debt-equity ratio constant?
Explanation / Answer
Details Amt $/% Forecast net income 51,300 Dividend payout @9.9%= 5,079 Retention amount (Addition to Retained earning) 46,221 Beginning Stockholders' equity= 296,800 Addition to retined earning 46,221 Increased Stockholders's Equity= 343,021 Beginning Debt 106,900 Beginning Stockholders' equity= 296,800 Beginning Debt/Equity= 0.360 Beginning Other non debt laibility=120200-106900= 13,300 Addition of other non debt laiability 9,500 Ending Non Debt Liability= 22,800 Ending Asset 503,800 a Required Equity +Debt=503800-22800= 481,000 b Available beginning debt= 106,900 c Available balance in stockholders' equity= 343,021 Increase in capital required=a-b-c= 31,079 Required D/E ratio=0.360 Debt/(D+E)=0.36/1.36 Debt =31079*0.36/1.36= 8,227 Equity= 22,852 So required additional debt = $ 8,227 required additional equity issue= $ 22,852
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