A Firm Has Estimated Earnings of $120,000 and Estimated Capital

A firm has estimated earnings of $120,000 and estimated capital spending of $90,000. Currently the firm has $180,000 in equity and a debt-equity ratio of.80. Which one of the following statements is true if the firm changes its capital structure to a debt-equity ratio of 1.0?

A) The dividend amount will increase if the firm follows a strict residual dividend policy.
B) The dividend amount will not be affected if the firm follows a strict residual dividend policy.
C) The amount of capital spending that can occur without issuing more equity securities will decrease.
D) The firm will need to borrow $60,000 to achieve the new debt-equity ratio.
E) The firm will need to borrow $24,000 to achieve the new debt-equity ratio.