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Problem:

Cloe Company is negotiating to increase sales. The increase requires Cleo to spend $40 million on production facilities. The firm will pay out $6 million in dividends to its shareholders next year. The firm maintains 20 percent debt ratio in its capital structure.

Required:

Question: If the firm earns $16 million next year, how much stock will the firm need to sell to maintain its capital structure?

Question: If the firm wants to avoid selling any new stock, how much can the firm spend on new capital expenditures?

Note: Please show how you came up with the solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91148763

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