Question: Lytle Trucking projects a $3.2 million EBIT next year. The firms marginal tax rate is 40%, and it currently has $8 million in long-term debt

Lytle Trucking projects a $3.2 million EBIT next year. The firm’s marginal tax rate is 40%, and it currently has $8 million in long-term debt with an average coupon rate of 8%. Management is projecting a requirement for additional assets costing $1.5 million and no change in current liabilities. They plan to maintain a 30% dividend payout ratio. Any additional borrowing required to fund next year’s asset growth will carry a 7% coupon rate. Lytle does not plan on issuing additional stock next year. Using the EFR concept rather than the EFR equation, develop an algebraic formula of your own to compute the additional debt needed to support an asset growth of $1.5 million.

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