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    Capital budget

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

    a) $8.0 million
    b) $12.0 million
    c) $20.0 million
    d) $50.0 million
    e) $2.0 million

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    Solution Summary

    The solution explains how to determine the amount of capital budget before external equity would be needed.