Accounting Assignment | Custom Assignment Help
Currently the firm has total market value of debt $20 million and total market value of equity $60 million. This capital structure is considered optimal by the management. The optimal capital budget for new investment for the coming period is determined to be $15 million. The total net income is estimated to be $15 million. The firm has 5 million common shares outstanding. The most recent dividend per share is $1 and the management intends to maintain it for the foreseeable future. The management also wants to maintain the optimal capital structure. Which of the following statements is true?
a. The firm would need to raise external equity of $5 millioin.
b. The firm’s optimal debt ratio is 30%
c. The firm would not need to raise external equity.
d. The dividend payout ratio is 50%
e. The firm would need to raise external equity of $1.25 million.