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(Solved) (Latest ver. Aug 2020) - Operating at Full Capacity

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Assume costs (except for depreciation and interest which remain constant), assets, and accounts payable maintain a constant ratio to sales.

a)If the firm is operating at full capacity, how much external financing is needed if sales are expected to increase by15% next year and the dividend payout ratio increases by 5%?
b)Using all of the same assumptions as above, how much external financing would be needed if fixed assets were only at 75% capacity in 2006.
c)Again referring to part (a) (full capacity), if the company wants to finance any EFN by using long-term debt and equity such that the current debt/equity ratio remains the same, what would the new amount of debt and equity be?


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