Question

It is January 2nd and senior management of Chester meets to determine their investment plan for the year. they decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday's stock price (31.71) and leverage charges to 2.7. Which of the following statements are true? Select all that apply.

Equity will be $80,735,822
Chester will issue stock totaling $2,378,250
Working capital will remain the same at $14,308 596
Total assets will rise to $211,565,445
Total liabilities will be $118,395,051
The total investment for Chester will be $201,509,124

Answer 1

Total Assets (given) - Total Liabilities (given) = Total Stockholders' Equity (plug)

$211,566,445 - $118,395,051 = $93,171,394

New stock issued = 75,000 x $31.71 = $2,378,250

Total Stockholders' Equity (above) - New stock issued (above) = Old Stock

$93,171,394- $2,378,250= $90,793,144

Total Assets / Total Stockholders' Equity = Leverage

2,11,566,445/ 9,3,171,394= 2.27, rounded to 2.7

Therefore 3 statement are true-

1)Chester will issue stock totaling $2,378,250

2)Total assets will rise to $211,565,445
3)Total liabilities will be $118,395,051