Answer to Question #73437 in Finance for jay

Question #73437
For the next fiscal year, you forecast net income of \$50,000 and ending assests of \$500,000. Your firm payout ratio is 10%. Your beginning stockholders equity is \$300,000 and your beginning total liabilities are \$120,000. Your non-debt liabilites such as accounts payable are forecasted to increase by \$10,000. Assume your beginning debt is \$ 100000. What amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your​ debt-equity ratio​ constant?
1) Beginning debt-equity ratio constant =beginning stockholders equity / beginning debt = \$300000/(\$100000+\$120000) = 1.36
2) Final debt-equity ratio constant = final stockholders equity / final debt = 1.36
Retained earnings = \$50000 – (\$50000*0.1) = \$45000
final stockholders equity = \$269067.8+\$45000= \$314067.8
Final debt-equity ratio constant = \$314067.8/(\$500000 - \$269067.8) = 1.36

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