Question: Need for External Financing To increase production capacity by 25%, a $500,000 investment is required. The firm wants to maintain a 20% debt-to-asset ratio, and

Need for External Financing To increase production capacity by 25%, a $500,000 investment is required. The firm wants to maintain a 20% debt-to-asset ratio, and continue to pay 40% of income as dividends. Net Income was $2 million.

A. How much External Financing is needed?

B. How much new Debt must they Issue? New debt required = (New investment)(Debt ratio)

C. How much new equity should they issue?

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