Question

It is January 2nd. Senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happily notes this will raise their Leverage (=assets/equity) to a new target of 2.7. Assume the stock can be issued at yesterday’s stock price ($38.41). Which of the following statements are true? Check all that apply. Select: 3 Total investment for Digby will be $5,185,350 The Digby bond issue will be $3,264,850 Long term debt will increase from $83,481,346 to $85,401,846 The Digby Working Capital will be unchanged at $16,310 Digby will issue stock totaling $1,920,500 Total Assets will rise to $228,175,000

Answer 1

ans)

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

221066899 - 121082334 = 99984565

New stock issued = 75000 X 37.61 = 2820750

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

99984565 - 2820750 = 97163815

Total Assets / Total Stockholders' Equity = Leverage

221066899 / 99984565 = 2.21 or 2.7

Since this gives us the desired leverage figure, we can be confident of TA, TSE, and TL

True statements are:

1. Total liabilities = 121082334

2. Baldwin will issue stock totalling $2820750

3.Total Assets will rise to $221066899

Hope this helps you