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?

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Select one:

a. The firm would need to raise external equity of $5 millioin.

b. The firm’s optimal debt ratio is 30%

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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.

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