Question: Northern California Heating and Cooling Inc has a six month backlog
Northern California Heating and Cooling, Inc. has a six-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand the firm’s production capacity by 40 percent with a $10 million investment in plant and machinery. The firm wants to maintain a 40 percent debt/assets ratio in its capital structure; it also wants to maintain its past dividend policy of distributing 45 percent of last year’s net income. Last year’s net income was $5 million. How much external equity must Northern California seek at the beginning of this year to expand its capacity as desired?
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