Karan works at a shoe store where the latest trends in shoes are displayed. Down the road from his store, two more stores opened
2 answers:
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Answer:
37.5%
Explanation:
Given:
Earnings per share, EPS = $3.00
Outstanding shares of stock = 500,000
Capital budget = $800,000
Dividend per share = $2.00
Now,
The total earning of the Warren Supply Inc. = EPS × Outstanding shares
or
Total earning of the Warren Supply Inc. = $3.00 × 500,000 = $1,500,000
Total Dividends paid = Dividend per share × Outstanding shares
or
Total Dividends paid = $2.00 × 500,000 = $1,000,000
Therefore,
the total retained earnings = Total earning - Total Dividends paid
or
the total retained earnings = $1,500,000 - $1,000,000 = $500,000
Thus,
the capital budget that must be financed with debt
= Forecasted capital budget - Total retained earning
= $800,000 - $500,000
= $300,000
Hence,
the percentage of capital budget that must be financed with debt
=
on substituting the respective values, we get
=
Percentage of capital budget that must be financed with debt = 37.5%