External equity needed
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Wolverine Corporation plans to pay a $3 dividend per share on each of its 300,000 shares next year. Wolverine anticipates earnings of $6.25 per share over the year. If the company has a capital budget requiring an investment of $4 million over the year and it desires to maintain its present debt to total assets (debt ratio) of 0.40, how much external equity must it raise? Assume that Wolverine's capital structure includes only common equity and debt, and that debt and equity will be the only sources of funds to finance capital projects over the year.
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Solution Summary
The solution explains how to calculate the amount of external equity needed given the earnings and capital structure
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The total requirement of investment is $4,000,000. The present debt ratio is 0.4. So the amount of debt that would be ...
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