Badger Tool and Die Company has 100,000 shares outstanding and plans to pay $1.00 per share in dividends each quarter next year.Badger has a capital budget of $700,000 for next year and plans to maintain its present debt ratio of 0.30.If earnings are expected to be $7.20 per share, how much external equity must Badger raise?
A)$210,000
B)$490,000
C)$170,000
D)none

Question

Quizplus · Accepted Answer

Earnings - dividends = R.E. = $720,000 - $400,000 = $320,000
Equity needed = $700,000(0.7) = $490,000
External equity = $490,000 - $320,000 = $170,000

Badger Tool and Die Company Has 100,000 Shares Outstanding and Plans