Using the same notation used in the previous problem, now assume that the firm will raise some
Question:
Using the same notation used in the previous problem, now assume that the firm will raise some funds externally in order to keep the firm's debt-to-equity (D/E) ratio constant.
a. What will this year's net income equal?
b. How much will be added to stockholder's equity this year?
c. If the D/E ratio remains constant, how much external debt can the firm raise this year?
d. What is this year's level of assets?
e. What is the change in assets between this year and the last?
f. The change in assets computed in part (e) has to be financed. Assuming a constant debt-to-equity ratio, compute the firm's sustainable growth rate. (Hint: Add your answers to parts (b) and (c) together and set them equal to the solution to part (e); then solve for g.)
Step by Step Answer:
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar