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Company A: Calculate the size of a capital budget without having to issue new stock.

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Company A has a capital structure that consists of 20% equity and 80% debt. The Company expects to report 3 million in net income this year and 60% of the net income will be paid out as dividends. How large must the firm's capital budget be this year without it having to issue any new common stock and why?

1.2M?
13M?
1.5M?
0.24M?
or 6M?

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Solution Summary

In a logical step-by-step process, the solution calculates the answer to the capital budgeting amount. The steps include explanations.

Solution Preview

The answer is 6M.

Explanation:

We know that earnings available to common ...

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