Answer:
new equity $ 1,425,000
new debt $ 950,000
Explanation:
retained earnings
300,000 x (6.25 - 3) = 975.000
If debt is 0.4 of assets then by deifinition:
assets = liab+ equity
1 = 4 + equity
equity = 0.6 (60%)
<u>Retained Earnings breakpoint</u>
975,000 / 0.6 = 1,625,000
The company can riase capital expenditured for 1,625,000 and mantaining his capital structure.
As the company need 4,000,000 it will need to raise more capital as it surpass the retained earnings breakpoint.
4,000,000 - 1,625,000 = 2,375,000
2,375,000 x 0.6 = 1,425,000 new equity
2,375,000 x 0.4 = 950,000 new debt
