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How much equity does it need to finance the expansion

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Reference no: EM133020078

Question - Perpetual Ltd is considering an expansion. Consider the following information about the financial structure of the firm.

Account payables $200,000

Short-term debt 200,000

Current liabilities $400,000

Long-term debt $1,500,000

Owner's equity 2,500,000

Total $4,400,000

Assume that the company paid a dividend of $4.00 per share last year and the dividend is expected to grow at 5 per cent for the next 7 years, and after that the growth rate will be 6 per cent forever.

Required -

a. If the firm aims to maintain a debt ratio of 30 per cent and need to raise an additional $1.3 million, how much equity does it need to finance the expansion?

b. Calculate the value of the share if the required rate of return is 14.5 per cent?

Reference no: EM133020078

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