Answer to Question #6675 in Statistics and Probability for Melanie

Question

I need to determine the value of z so that the area under the standard normal curve in the right tail is .0505.

Also, finding the area under the standard normal from z=0 to z= -3.75. Is there such a value or is it approx 0?

Answer 1

The answer:
e. $140.0 $90.0 $410.0

Explanation:
To take start capital structure (25% debt and 75% equity) we have next capital budget (from $150 mln):
To equity capital: (100% - 65%)*$150 mln = $52.5 mln, capital budget = $52.5 mln / 0.75 = $70 mln

(1) if debt ratio is raised to 75%, the equity ratio is 25%, capital budget = $52.5 mln / 0.25 = $210 mln,
the increase is $210 - $70 = $140 mln;
(2) retained income = (100% - 20%)*$150 mln = $120 mln, if 25% debt and 75% equity =>
=> capital budget = $120 mln/0.75 = $160 mln => the increase is $160 - $70 = $90 mln;
(3) we have retained income $120 mln, 75% debt and 25% equity => capital budget = $120 mln / 0.25 = $480 mln, the
increase is $480 - $70 = $410 mln;