Question

Carnfield Enterpriseshad just completed its annual planning and budgeting process and needs to raise ​$20 million...

Carnfield Enterpriseshad just completed its annual planning and budgeting process and needs to raise ​$20 million to finance its capital expenditures for the coming year. The firm earned $18 million last year and will pay out half this amount in dividends. If the​ firm's CFO wants to finance new investments using no more than 30 percent debt financing, how much common stock will the firm have to issue to raise the needed $20 million?

How much common stock will the firm have to issue?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

We know that Carnfield Enterprises needs to raise $20 million to finance its capital expenditures for the coming year.

Company can use retained earnings, debt financing and common stock as its source of new financing

The firm’s earnings last year = $18 million

Dividend payout ratio = 50%

Therefore, retained earnings = the firm’s earnings last year * Dividend payout ratio

= $18 million * 50% = $9 million

New investment’s debt financing = 30% of total fund need to be raised

= 30% * $20 million = $6 million

Common stock the firm has to issue = total fund need to be raised - retained earnings - New investment’s debt financing

= $20 million - $9 million - $6 million

= $5 million

Therefore the common stocks, the firm has to issue is $5 million

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and...
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and $30 million of common equity. The firm has 500,000 shares of common stock outstanding. Sand Key is planning a major expansion and will need to raise $15 million. The firm must decide whether to finance the expansion with debt or equity. If equity financing is selected, common stock will be sold at $75 per share. If debt financing is chosen, 7% coupon bonds will...
A company is planning a new plant and needs to raise (net of underwriting cost) $27.9...
A company is planning a new plant and needs to raise (net of underwriting cost) $27.9 million to finance it. The company plans to raise the money through a general cash offering priced at an offer price of $5 a share. The underwriters charge a 7 per cent spread. How many shares does the company have to sell to achieve its goal (in millions to three decimal places)? (Hint: required amount/(1-spread) = issue amount)
​(Financial forecasting—discretionary financing needs​) Sambonoza Enterprises projects its sales next year to be ​$3 million and...
​(Financial forecasting—discretionary financing needs​) Sambonoza Enterprises projects its sales next year to be ​$3 million and expects to earn 4 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions​ (projections):1. Current assets will equal 24 percent of​ sales, and fixed assets will remain at their current level of ​$1 million.2. Common equity is currently ​$0.70 ​million, and the firm pays out half of its​ after-tax...
​(Financial forecasting—discretionary financing needs​) Sambonoza Enterprises projects its sales next year to be ​$6 million and...
​(Financial forecasting—discretionary financing needs​) Sambonoza Enterprises projects its sales next year to be ​$6 million and expects to earn 7 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions​ (projections):1. Current assets will equal 28 percent of​ sales, and fixed assets will remain at their current level of ​$1 million.2. Common equity is currently ​$0.80 ​million, and the firm pays out half of its​ after-tax...
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and...
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and $30 million of common equity. The firm has 500,000 shares of common stock outstanding. Sand Key is planning a major expansion and will need to raise $15 million. The firm must decide whether to finance the expansion with debt or equity. If equity financing is selected, common stock will be sold at $75 per share. If debt financing is chosen, 7% coupon bonds will...
Renee’s Boutique, Inc., needs to raise $58.03 million to finance firm expansion. In discussions with its...
Renee’s Boutique, Inc., needs to raise $58.03 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 5.0 percent of the gross price. 1)Calculate the net proceeds to Renee’s from the sale of the debt. 2) How many bonds will Renee’s Boutique need to sell in order to receive the $58.03 million it needs?
​(Financial forecasting​) Sambonoza Enterprises projects its sales next year to be ​$8 million and expects to...
​(Financial forecasting​) Sambonoza Enterprises projects its sales next year to be ​$8 million and expects to earn 4 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions​ (projections):1. Current assets will equal 28 percent of​ sales, and fixed assets will remain at their current level of ​$1 million.2. Common equity is currently ​$0.90 ​million, and the firm pays out half of its​ after-tax earnings in...
Renee’s Boutique, Inc., needs to raise $58.08 million to finance firm expansion. In discussions with its...
Renee’s Boutique, Inc., needs to raise $58.08 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross price. Calculate the net proceeds to Renee’s from the sale of the debt. (Enter your answer in millions of dollars and round to 2 decimal places.)   Net proceeds to Renee’s $ m...
Don’s Captain Morgan, Inc., needs to raise $14.10 million to finance plant expansion. In discussions with...
Don’s Captain Morgan, Inc., needs to raise $14.10 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $22.00 per share and Don’s will receive $19.85 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.)   Underwriter’s spread $  per share   How many shares of stock will Don’s need to sell in order to receive the $14.10 million it...
Don’s Captain Morgan, Inc. needs to raise $13.90 million to finance plant expansion. In discussions with...
Don’s Captain Morgan, Inc. needs to raise $13.90 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $21.80 per share and Don’s will receive $19.25 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.) How many shares of stock will Don’s need to sell in order to receive the $13.90 million it needs? (Round your answer...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT