Question 10 (4 points) A firm has $75 million in assets and its optimal capital

Question

Question 10 (4 points) A firm has $75 million in assets and its optimal capital structure is 60% equity and 40% debt. If the firm has $18 million in retained earnings, at what asset level will the firm need to issue additional stock? (Assume no growth in retained earnings.) O 1) The firm should have already issued additional stock. O2) The firm can increase assets to 930 ai11i1on. 3) The firm can increase assets to $20 million. 4) There is insufficient information to determine an answer. Save Formula Section FV = P (FVIFin) or FV = PV(1 + i)"

Explanation / Answer

Option B

Asset can increase by 30 million

retained earnigs = 18 million

so, 60% of asset = 18

Assets = 18 / 60% = 30 million

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