Answer:
28.57%
Explanation:
The computation of the percentage needed to financed with debt is shown below:
Percentage of the capital budget must be financed with debt is
= Debt needed ÷ Capital budget
where,
Capital budget is $700,000
And, the debt needed is
Debt needed = Capital budget - Retained earnings
where,
Retained earning is
For retained earning we need to do following calculations
Net income = EPS × Shares outstanding
= $5.00 × 500,000
= $2,500,000
Dividends paid is
= DPS × Shares outstanding
= $4.00 × 500,000
= $2,000,000
Now
Retained earnings available is
= $2,500,000 - $2,000,000
= $500,000
By placing these values the debt needed is
= $700,000 - $500,000
= $200,000
And the percentage is
= $200,000 ÷ $700,00
= 28.57%