External Equity Financing

Posted on 2013-12-03 14:06:00 in Management by ANNA

Hello!



Here is the problem I can't solve:

Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40% with a $10 million investment in plant and machinery. The firm wants to maintain a 40% debt-to-total-assets ratio in its capital structure. It also wants to maintain its past dividend policy of distributing 45% of last year's net income. In 2010, net income was $5 million. How much external equity must Northern Pacific seek at the beginning of 2011 to expand capacity as desired?



I've tried different approaches, but I think that I just don't understand a thing in this problem - unusual for me because usually I know at least where to start from and approximate route to success ))) not this time.



I would be grateful for the help!

Thank you!

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