The Danville Company is considering a $50 million expansion (capital expenditure) program next year.The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken.Next year the company expects to earn $25 million after interest and taxes.The company also plans to increase its dividends from $5 million to $7 million.If the expansion program is accepted, the company expects working capital requirements to increase by approximately $8 million next year.Long-term debt retirement obligations total $3 million next year and depreciation is expected to be $13 million.No fixed assets are expected to be sold next year.
A)$30 million
B)$43 million
C)$32 million
D)$22 million

Question

Quizplus · Accepted Answer

Financing needed = $50 million capital expenditure - $25 million EAT + $7 million dividends
+ $8 million working capital increase + $3 million debt retirement - $13 million depreciation = $30 million

The Danville Company Is Considering a $50 Million Expansion (Capital