Question

It is January 2nd and senior management of Baldwin 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 ($42.04) and leverage changes to 2.7. Which of the following statements are true? Select all that apply.

Equity will be $87,955,544

Total liabilities will be $124,182,610

Total Assets will rise to $228,966,869

The total investment for Baldwin will be $215,291,154

Baldwin will issue stock totaling $3,153,000

Working capital will remain the same at $17,337,787

Answer 1

Working Capital will remain same at $17,337,787 because Bsldwin is raining long term capital which has no bearing on current assets and liabilities. (True)
Baldwin will issue stock totalling 3,153,000 is correct. because ( 75000 shares are issued at 42.04 = 75000* 42.04 = 3,153,,000. (True)
Total Assets = 228,966,869
Total liabilities will be $124,182,610

Equity Given =87955,544
Total Equity = Total Assets - Total Liability = 228,966,869 - 124,182,160 = 104,784,259
Leverage = Total Assets /Equity = 2.7 ( However Total Assets /Equity = 228,966,869/104,784,259) = 2.18
which is not equal to 2.7.
Hence Equity, Liability and Total assets are (not true.)
Total investments is not true too because Working capital can't be calculated hence investments can\t be calculated( Total assets - working capital = investment)  (not true)

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