t is January 2nd. Senior management of Digby meets to determine their investment
ID: 433009 • Letter: T
Question
t is January 2nd. Senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happily notes this will raise their Leverage (Assets/Equity) to a new target of 2.50. Assume the stock can be issued at yesterday's stock price $21.22. Which of the following statements are true? (Select 2 answers) Long term debt will increase from $34,248,996 to $35,309,749 Digby will issue stock totaling $1,080,753 Digby bond issue will be $50,090 Total Assets will rise to $146,318,945 Total investment for Digby will be $2,854.270 Digby working capital will be unchanged at $18,583,185Explanation / Answer
Answer B and E
B = Digby will issue stock totalling $1,060,753 /-
E= Total investment for Digby will be $ 2,654,270 /-
Digby is going to release 50,000 stock @ 21.22 = 50,000*21.22= $1,061,000 /-. This is close to option B.
Digby is levergae will be increased to 2.50 hence total investment will be 1061000*2.50 = $ 2,652,500. This is close to option E.
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