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How much equity does need to finance the expansion

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Affordable Furniture is considering an expansion. Consider the following information about the financial structure of the firm.

Account payables $ 100,000

Short-term debt 200,000

Current liabilities _$ 300,000

Long-term debt $ 1,000,000

Owner's equity 1,500,000

Total _$ 28,@,000

  • Assume that the company paid a dividend of $2-00 per share last year and the dividend is expected to grow at 4 per cent for the next 4 years, and after that the growth rate will be 3 per cent forever.

Required:

Problem A - if the firm aims to maintain a debt ratio of 40 per cent and need to raise an additional $1 million. how much equity does it need to finance the expansion?

Problem B - Calculate the value of the share if the required rate of return is 6 per cent?

Reference no: EM132735291

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