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Calculating capital budget amount

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Clinton Company is financed 40 percent by equity and 60 percent by debt. If the firm expects to earn $20 million in net income and retain 40% of it, how large can the capital budget be before common stock must be sold?

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Solution Summary

The solution explains how to determine the amount of capital budget needed before the need to sell new common stock.

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The retained earnings would be 40% of net income = 20,000,000X40%= $8,000,000

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